2017 SUSTAINABILITY REPORT SUSTAINABILITY REPORT 2017 Contents 2 Contents

Letter from the Chairman of NOVATEK’s ETHICS 39 PROCUREMENT PRACTICES 74 Management Board 3 Anti-corruption policy 40 Procurement approach 75 Prevention of conflicts of interest 41 Supply chain management 76 REPORT AND REPORTING PROCESS 5 Import substitution policy 76 Human rights 41 Report preparation 6 Identification of material topics 7 COMPANY’S RESULTS 42 OCCUPATIONAL HEALTH AND SAFETY 77 Ensuring strong economic performance 43 Our approach to health and safety 78 COMPANY PROFILE 9 Business model 45 Operational control 79 The Company’s structure as at 31 December 2017 11 Production 46 Accidents and incidents 79 Share capital structure and market capitalization 12 Hydrocarbon production 49 Workplace injury rate 80 Membership in trade associations 13 Gas condensate processing 50 OHS training 80 Awards and achievements 13 Marketing and sales 52 Fire safety, civil defence and emergencies 80 Dividends 55 OUR STRATEGY 14 ENVIRONMENTAL PERFORMANCE NOVATEK’s strategy for 2018–2030 18 AND PROTECTION 82 Sustainable development 19 EXTERNAL SOCIAL POLICY 56 Environmental vision 83 Cooperation with Russian regions 57 Environmental monitoring 84 Support of indigenous minorities of the North 58 Environmental protection – government control 85 STAKEHOLDER ENGAGEMENT 20 Educational programs 60 Emissions and waste 85 Stakeholder engagement principles 21 Preserving cultural heritage 61 Water use and disposal 87 Stakeholder engagement matrix 22 Promotion of sports 62 Energy consumption and efficiency 89 Help to children in dire need 62 Biodiversity preservation 90 Disturbed area reclamation 92 CORPORATE GOVERNANCE 29 Volunteering 63 Environmental protection training 92 Corporate governance system 30 Aid to veterans 63 Environmental costs 93 Remuneration of members of the Board of Directors and the Management Board 35 Internal control and audit 36 EMPLOYMENT PRACTICES 64 Risk management 37 Employee profile 65 Appendix 1. Personnel structure 94 Corporate technical competency assessment system 68 Appendix 2. Compliance with GRI standards 98 Personnel training and development 68 Glossary 111 Trade union relations 70 Social policy 70 SUSTAINABILITY REPORT 2017 LETTER FROM THE CHAIRMAN OF NOVATEK’S MANAGEMENT BOARD 3

Dear stakeholders,

responsibility for preserving our country’s It gives us great pleasure to present NOVATEK’s Eleventh Sustain- heritage. We provide financial support to ability Report 2017 prepared in accordance with the new provisions the “Yamal for Descendants” association of the international GRI Standards. and targeted support to indigenous peoples. Our acquisitions of new license areas Our Company has maintained the high- kets and how we believe NOVATEK can in the Gydan Peninsula will also stimulate est regard to principles of non-financial play a key role in delivering clean-burn- further development of this remote area reporting: transparency, honesty and ing, affordable and secure energy to the through NOVATEK’s capital investments. consistency in information disclosure, en- global markets. Our new strategy posi- In 2017, we signed a Cooperation abling us to provide unquestioned confi- tions NOVATEK as a global leader in the Agreement with the Kamchatka Territorial dence to our investors, shareholders and LNG market, and we are confident that Government to build a sea transshipment other stakeholders concerning our commit- we will achieve this ambitious goal due terminal for reloading liquefied natural gas ment to sustainable development. to our unique resource potential, profes- at Kamchatka. The Cooperation Agree- The past year was a milestone in many sional competences, balanced investment will facilitate the development of respects for NOVATEK and, equally import- ment and financial policy and, of course, transport infrastructure, trading, economic, ant, for our sustainable development initia- the responsible approach to our business research and technology ties at the Kam- tives. On 12 December 2017, we held our conduct. Our future vision correlates with chatka Territory, will create additional jobs Corporate Strategy Day in Moscow, which the global trend of transitioning the world’s in the region, as well as create conditions comprehensively outlined our long-term economies towards low-carbon, greener for Kamchatka’s gasification, using the strategy covering the period up to 2030, emissions. boil-off gas from the reloading terminal to highlighting our views of the global mar- Our transformation into a global gas generate power and support utility indus- company and a major global LNG player tries on the Kamchatka Peninsula. began with the successful launch of our In the field of charitable activities and first liquefied natural gas production in corporate sponsorship, we fund projects 102-14 2017 at our Yamal LNG project. and activities aimed at supporting edu- NOVATEK cooperates with regional cation and culture, promoting Russian art Contributions to Society governments in the Company’s regions of and its integration into the international operations in infrastructure development, cultural space, and developing amateur • Over 12,000 employees improvement of education and quality of and professional sports. • RR 2.8 billion spent on region’s development and charity life. The Company’s core area of opera- In 2017, the Company approved the • RR 1.4 billion spent on social programs for employees tions is the Yamal-Nenets Autonomous NOVATEK Charity Program, with the sup- • Dividends paid RR 45 billion Region in Russia. Traditionally, we support port of children being one of our key • Group procured RR 706 billion worth of goods and services from small indigenous minorities of the North, priorities. suppliers including activities within the framework In the current reporting year we allo- • RR 2.1 billion spent on environmental protection of the state sponsored programs. The cated approximately RR 2.8 billion into culture and life style of these indigenous the region`s development, social proj- peoples are unique and we recognize our ects, charity and sponsorship programs, SUSTAINABILITY REPORT 2017 LETTER FROM THE CHAIRMAN OF NOVATEK’S MANAGEMENT BOARD 4

102-14 increasing our commitments to sustain- Ensuring operational and labor safety in the nomination category “Science for able development by 47% compared is our also a key priority. We are focused Ecology”. Primary themes with 2016. on preventing hazardous occurrences and We closely monitor biodiversity with- NOVATEK employs more than 12 thou- minimizing the risks of occupational inju- in the territory of the South-Tambeyskoye sand people who are considered our ries, accidents and fires. To ensure and field, as well as all our other projects. The • Energy Affordability most valuable asset. It is the dedication enhance occupational safety NOVATEK implementation of our large-scale Yamal • Energy Security and commitment of our employees that takes all possible measures, including LNG project imposes special obligations • Energy Sustainability allows us to achieve high operating and state-of-the-art safety systems, rigid con- on the Company with regard to environ- financial results and our transformation as trol, regular checks and employee training. mental protection. a leader in the global gas market. We fully We have always strived to meet the To preserve biodiversity we took an support our employees in all endeavors highest norms and standards in the area active role in the construction of a fish to achieve our sustainable developments of environmental responsibility and stew- plant on Sob river to breed valuable and matters as human rights, one of the most goals and objectives, as well as a “pre- ardship. Improving environmental protec- endangered fish species. This biodiversity talked-about topics in sustainable devel- ferred” place of employment. In 2017, we tion is an essential part of our sustainable project is unique for the Arctic region and opment, which requires special attention spent over RR 1.4 billion on social pro- development initiatives. Investments in it is all the more important for the Com- and consideration. We strive to further grams for the employees, and we support environmental initiatives ensure the quality pany to take an active part in its imple- improve our sustainable development our employees` efforts to improve their of life and the health of future generations. mentation. Even under severe climatic practices in line with industry best prac- professional skills and enhance career As part of the “Year of Ecology” in Rus- conditions, we can and must take care of tices and evolving global initiatives. We opportunities, as well as their commitment sia, we developed and implemented an nature and facilitate reproduction of bio- take pride in our accomplishments but are to the achievement of NOVATEK’s long- Action Plan aimed at ensuring the highest logical species through new environmen- keenly aware that we must improve each term strategic goals. We recently launched levels of environmental awareness: anoth- tal technologies. and every year. As a global leader in pro- the prospective idea management proj- er stage of our Biodiversity Program was Our Sustainability Report 2016 was one viding clean burning energy to industries ect called “Novator”, which represents an implemented, concrete action steps were of the winners of the “Change Manage- and residential consumers, our Sustain- automated corporate system to accumu- implemented to ensure artificial repro- ment. Visionaries” in the category “Dis- ability Report 2017 provides a review of late employees’ ideas on improving busi- duction of water bio resources within the closure of Information on Social Impact”. many important initiatives we undertook ness operations, including innovations and areas where the Company operates. This award proves that we are moving in over the past year and a glimpse into our technological enhancements. “Novator” is We also pay special attention to the the right direction, striving for best disclo- future activities. We will keep informing the embodiment of social partnership prin- emission of greenhouse gas. Since 2008, sure of information in our non-financial you on our developments in our future ciples within the Company. NOVATEK has taken part in the Car- reports, as well as completeness, compa- sustainability reports. bon Disclosure Project (CDP) for report- rability and transparency of the provided ing greenhouse gas emissions by large information. businesses. In 2017, we introduced our With each passing year, we seek to In 2017, we introduced our own Greenhouse Gas Emission Manage- provide high quality and reliable informa- Greenhouse Gas Emission ment System and this initiative was duly tion to all of our stakeholders. Our Sus- Management System and rewarded: NOVATEK was announced the tainability Report 2017 includes for the first became the winners of the winner of the 2017 National Environmen- time information regarding our approach- Leonid Mikhelson national Environmental Award. tal Award named after Vladimir Vernadskiy es and measures taken on such important Chief Executive Officer, PAO NOVATEK SUSTAINABILITY REPORT 2017

REPORT AND REPORTING PROCESS SUSTAINABILITY REPORT 2017 REPORT AND REPORTING PROCESS 6 Report and reporting process

REPORT PREPARATION 102-46 The 2017 Sustainability Report is • Balance • Accuracy • Clarity NOVATEK’s 11th non-financial report that The Report reflects positive and The Company seeks to provide The Report presents information in a provides a comprehensive disclosure of negative aspects of the Company’s stakeholders with detailed information manner that is understandable and our economic, environmental and social performance to ensure open and on all material aspects of our business accessible to the stakeholders without achievements, NOVATEK’s approach to transparent interactions with stake- operations, maximizing the extent of relying excessively on industry-specific interaction with stakeholders, corporate holders. disclosure and publishing all the facts terminology. It also provides glossary governance and the principles of busi- and figures required for a proper for all terms, abbreviations and units of ness, procurement management and oth- • Comparability assessment by stakeholders. When measurement contained in the Report. er relevant sustainability topics. The information reflects the Company’s describing approaches to various This is also our first Sustainability approach to managing various aspects aspects, the Company relies on the • Reliability Report to draw on the newly published of its operations and performance for current versions of its by-laws (policies, The Report provides data from Global Reporting Initiative (GRI) Standards* each area. The Report features codes, regulations, etc.). relevant business units that comprise as the core guidelines. indicators for a period of four to five the reporting team. The Company’s Information disclosed in the Report is years to enable stakeholders to • Timeliness dedicated experts and professionals compliant with the key GRI principles for analyse changes in our performance The Company publishes reports in the verify the information for accuracy, defining report quality. across the most relevant aspects third quarter of each year, and plans to reliability and completeness. based on historical data. maintain this reporting schedule going forward.

* The previous Sustainability Report was prepared in accordance with GRI G4 Guidelines. SUSTAINABILITY REPORT 2017 REPORT AND REPORTING PROCESS 7

IDENTIFICATION OF MATERIAL TOPICS 102-1 102-32 Report title Sustainability Report of PAO NOVATEK In early 2018, the Company surveyed The Company is continuously improv- 102-43 the stakeholders and the internal working the quality of its non-financial report- 102-44 Reporting cycle Annual 102-45 ing group as suggested by GRI recom- ing, while also seeking to meet the 102-46 Reporting period 1 January – 31 December 2017 mendations to identify the material topics expectations of as many stakeholders as 102-49 to be covered in the Sustainability Report possible with respect to its sustainabili- 102-50 The most recent previous report issued in Q3 2017 102-51 for 2017. Stakeholders that helped define ty disclosures. The Sustainability Report 102-52 The next report is expected to be issued in Q3 2019 material topics included investors, part- 2017 is also our first report to cover the 102-54 ners and the expert community. Each topic important topic of human rights, which is Key standards applied GRI Guidelines included in the three GRI categories (eco- becoming increasingly relevant for stake- Version GRI Standards nomic, environmental and social topics) holders and the global community at large.

“In accordance” option used Core was to be graded on a scale ranging from For a number of topics (including environ- 0 to 3 where 0 meant low materiality and 3 ment, corporate responsibility, engage- AA1000SES Stakeholder Engagement – high materiality. As a result, the Compa- ment with local communities, occupational Additional standards and • Standard requirements used • National GOST R ISO 26000:2012 ny identified 20 material topics that were health and safety), the disclosure goes Standard disclosed herein in full detail. The list of beyond the scope recommended by the Officer responsible for the Report Mark Anthony Gyetvay, Deputy Chairman of material topics remains largely unchanged GRI Guidelines to factor in the disclosure verification and approval the Management Board from the previous year. Importantly, this requirements of the FTSE Russell and Sus-

Number of material topics 20 Report provides coverage on GRI 307: tainalytics rating agencies. Environmental Compliance, a material top- In addition, the 2017 Report provides Number of published reports 11 ic that was not previously disclosed. more insights into corporate governance, The Report covers key structural units, with a special emphasis placed on the subsidiaries and joint ventures of PAO Report boundaries Company’s new corporate strategy and NOVATEK in Russia, Poland, Switzerland, Singapore, Montenegro and Cyprus Yamal LNG, its key project.

PAO NOVATEK, NOVATEK, Company, NOVATEK Company names used in the Report Group and Group SUSTAINABILITY REPORT 2017 REPORT AND REPORTING PROCESS 8

102-47 Materiality matrix of sustainability aspects List of topics

Topics covered in GRI Standards No. in the matrix 8 11 GRI 201: Economic Performance 1 27 1; 17 GRI 202: Market Presence 2 9; 15 10; 12 GRI 203: Indirect Economic Impacts 3 25 13 18 GRI 204: Procurement Practices 4 GRI 205: Anti-Corruption 5 5 GRI 206: Anti-Competitive Behaviour 6 GRI 301: Materials 7 4 3 GRI 302: Energy 8 GRI 303: Water 9 20 GRI 304: Biodiversity 10 GRI 305: Emissions 11 19 21 GRI 306: Effluents and Waste 12

16 GRI 307: Environmental Compliance 13 GRI 308: Supplier Environmental Assessment 14 2 GRI 401: Employment 15 GRI 402: Labor/Management Relations 16 29 26 GRI 403: Occupational Health and Safety 17 GRI 404: Training and Education 18 7; 28 33 GRI 405: Diversity and Equal Opportunity 19 GRI 406: Non-Discrimination 20 6 GRI 407: Freedom of Association and Collective Bargaining 21 14; 24; 30 GRI 408: Child Labor 22 31 GRI 409: Forced or Compulsory Labor 23 22; 23 GRI 410: Security Practices 24 32 GRI 411: Rights of Indigenous Peoples 25 GRI 412: Human Rights Assessment 26 GRI 413: Local Communities 27 GRI 414: Supplier Social Assessment 28 The Company surveyed the stakeholders group GRI 415: Public Policy 29 to identify the material topics to be covered in GRI 416: Customer Health and Safety 30 the report. Please refer to the list of topics on GRI 417: Marketing and Labelling 31 Materiality to stakeholders to Materiality the right side of the page. GRI 418: Customer Privacy 32 GRI 419: Socioeconomic Compliance 33

Materiality to the Company SUSTAINABILITY REPORT 2017

COMPANY PROFILE SUSTAINABILITY REPORT 2017 Company profile 10 Company profile

102-1 102-3 NOVATEK is one of Russia’s larg- (Western Siberia). As at the end of 2017, hydrocarbons used as feedstock for mar- mtpa each). In 2017, Yamal LNG’s share- 102-4 est independent natural gas produc- our proved reserves totalled 15.1 billion ketable liquefied petroleum gas (LPG). holders approved the construction of the 102-5 ers. Ranking third by proved SEC natural barrels of oil equivalent, or boe. In 2017, NOVATEK supplies natural gas and liquid fourth train to expand the facility’s capaci- gas reserves, it is also one of the top 10 NOVATEK produced natural gas, gas con- hydrocarbons to domestic and interna- ty by another 0.9 mpta (from 16.5 mtpa to world’s largest publicly traded oil and densate and oil at 16 fields in Russia and tional markets. In December 2017, Yamal 17.4 mtpa). The Company purchases some gas companies in terms of gas produc- held 45 subsoil licenses as at the year- LNG, a joint venture of NOVATEK, TOTAL of the produced LNG and sells this prod- tion boasting one of the industry’s lowest end. Gas condensate from our fields is S.A., China National Petroleum Corpora- uct in the international markets. As part exploration and development costs. stabilized at the Purovsky Plant, with the tion and the Silk Road Fund, launched the of our international trading operations, NOVATEK’s core operations are pro- bulk of the resulting stable gas conden- first LNG train using the resource base of we also sell and purchase natural gas in duction and processing of gas and liq- sate (SGC) transported for further pro- Yamal LNG’s South-Tambeyskoye field. Europe under short- and long-term con- uid hydrocarbons in Russia, with its key cessing at the Ust-Luga facility. In addition The plant’s three LNG trains will deliver an tracts, and engage in LNG regasification fields and license areas concentrated in to SGC, the Purovsky Plant produces light aggregate LNG capacity of 16.5 mtpa (5.5 in Poland. the Yamal-Nenets Autonomous Region

Company name and legal form: Public Joint-Stock Company NOVATEK Head office located at 2 Udaltsova St., Moscow, 119415, Russian Federation SUSTAINABILITY REPORT 2017 Company profile 11

THE COMPANY’S STRUCTURE AS AT 31 DECEMBER 2017* 102-7 Changes in the Company’s structure 102-10 Upstream Exploration & Russian Midstream & International E&P & Other 102-45 Production (E&P) Marketing Marketing • In July 2017, NOVATEK acquired 51% in Cryogas- NOVATEK-Yurkharovneftegas NOVATEK-Purovsky ZPK NOVATEK Gas & Power GmbH Sherwood Premier Vysotsk engaged in constructing the first train of a 100% 100% 100% 100% medium-scale LNG plant of 660 thousand tons per NOVATEK EQUITY (CYPRUS) year in the port of Vysotsk (Baltic Sea). The Company NOVATEK-Tarkosaleneftegas NOVATEK – Ust-Luga NOVATEK Polska Sp. z o.o. LIMITED 100% 100% 100% recognizes Cryogas-Vysotsk as a joint venture. 100% • In November 2017, NOVATEK acquired 100% of ARCTICGAS NOVATEK Moscow Region Blue Gaz Sp. z o.o NOVATEK-Transervice Severneft-Urengoy that develops the West- 53.3% 100% 100% 100% Yaroyakhinskoye license area in the Purovsky District Nortgas NOVATEK-Kostroma NOVATEK Montenegro B.V. NOVATEK-Murmansk** (Yamal-Nenets Autonomous Region) adjacent to the 50% 100% 100% 100% Company’s infrastructure. YARGEO NOVATEK-Chelyabinsk Novatek Gas&Power Asia NOVATEK-Energo • In December 2017, NOVATEK acquired 100% of 51% 100% Pte Ltd 100% 100% Yuzhno-Khadyryakhinskoye and Eurotek that hold Yamal LNG NOVATEK-Perm licenses for exploration and hydrocarbon production at 50.1% 100% the South-Khadyryakhinskoye and Syskonsynyinskoye Terneftegas NOVATEK-AZK fields. The South-Khadyryakhinskoye field lies in close 51% 100% proximity to NOVATEK’s North-Khancheyskoye field

NOVATEK-Yarsaleneftegaz Cryogas-Vysotsk (Yamal-Nenets Autonomous Region). 100% 51%

Arctic LNG 1 100%

Arctic LNG 2 100%

Arctic LNG 3 100%

Severneft-Urengoy 100%

Yuzhno-Khadyryakhinskoye 100%

Eurotek 100%

NOVATEK Scientific and Technical Center 100%

* Shows NOVATEK’s key companies. ** Kola Yard before 1 February 2018. SUSTAINABILITY REPORT 2017 Company profile 12

SHARE CAPITAL STRUCTURE AND MARKET CAPITALIZATION 102-7 The Company’s share capital totals RR As at the end of the reporting year, Share capital structure*, % NOVATEK’s total capitalization as 303,630,600 divided into 3,036,306,000 NOVATEK’s total capitalization (total at 31 December 2017 ordinary shares with a par value of RR debt plus equity) as reported under IFRS 0.1 each. NOVATEK’s shares are trad- aggregated RR 931,409 mln. ed in Russian roubles on the Moscow Exchange (MOEX). On the London Stock Exchange (LSE), the Company`s GDRs trade in US dollars with each GDR representing 10 ordinary shares.

30% The Bank of New York 83% Equity Mellon** 17 % Debt 23% Volga Group 16 % TOTAL E&P HOLDINGS RUSSIA 10% Gazfin Cyrpus Limited 7% Levit 14% Other (less than 5% each)

* According to the data contained in the list of persons entitled to participate in the General Meeting of Shareholders and holding at least 5% of ordinary shares. Record date is 6 September 2017. ** The proportion of shares traded outside the Russian Federation is traded in the form of global depositary receipts, or GDRs. SUSTAINABILITY REPORT 2017 Company profile 13

MEMBERSHIP IN TRADE ASSOCIATIONS AWARDS AND ACHIEVEMENTS 102-13 Organization Date of enrollment Note • The Company’s Greenhouse emission management system launched in 2017 won the V. I. Vernadskiy’s 1 Russian Gas Society (NPO) 2003 Environmental Science award. The award ceremony took place on 18 December 2017. 2 V. I. Vernadskiy Non-Governmental Environmental Fund 2005 One of the Founders • The Company was named the winner of “Change Management. Visionaries”, a sustainability impact award, Member of technical working groups with its 2016 non-financial report in the Social Impact (natural gas 3 Rosstandart’s Best Available Technology Bureau 2006 Disclosure category. The award ceremony took place production, waste on 26 April 2018. disposal and treatment) • Sabetta International Airport won the third Air Gate of Russia national award as the Best Regional Airport of Central Commission for Approval of Hydrocarbon 4 2011 Development Projects 2016. The award ceremony took place on 8 February 2017. 5 Russian-Chinese Business Council 2015 • In 2017, NOVATEK was included in the global FTSE4Good Index designed by FTSE Russell to enable Union of Builders of the Yamal-Nenets Autonomous Region investors to assess corporate social responsibility and 6 2017 (self-regulated organization) sustainable development of businesses. During the reporting year, the Company was named one Design Engineer (Association of Oil and Gas Design • 7 2017 Organizations) of the 100 best performing emerging market companies, according to Vigeo Eiris. Field Engineer (Association of Oil and Gas Engineering Survey In the past year, the Company ranked as a top 8 2017 • Organizations) performer in the RSPP’s Responsibility and Transparency index.

“Change Management. V. I. Vernadskiy’s Visionaries”, Environmental Science a sustainability impact award award SUSTAINABILITY REPORT 2017

OUR STRATEGY SUSTAINABILITY REPORT 2017 Our strategy 15 Our strategy

NOVATEK’S STRATEGY FOR 2018–2030 On 12 December 2017, we held our Cor- porate Strategy Day in Moscow that comprehensively outlined our long-term strategy EFFICIENT INVESTMENT covering the period up to 2030, highlight- DECISIONS ing our views of the global markets and how we believe NOVATEK can play a key role in delivering clean-burning, affordable and secure energy to the global markets. The process of transforming into a global gas company and a major global LNG play-

er began with the successful launch of our innovatio n first liquefied natural gas (LNG) production INCREASE MAINTAIN in 2017. HYDROCARBON LOW COST PRODUCTION STRUCTURE From July 2005, when we went public with IPO on the London Stock Exchange, we used the analogy of the four pillars model technology technology to highlight the attractiveness of NOVATEK RESOURCE BASE as an investment opportunity: high quality GROWTH long life reserves, strong production growth, SUSTAINABLE CORPORATE low operating cost and low risk to com- DEVELOPMENT GOVERNANCE modity price movements. Now we proudly add a fifth column – scalable LNG projects OPTIMIZE BUILD LOW COST, – further strengthening our foundation, our MARKETING SCALABLE LNG uniqueness, and our investment story. Nat- CHANNELS PLATFORM ural gas will play a leading role in the global future energy mix to 2030 and beyond, and our new corporate strategy transforms innovatio n NOVATEK into a major global LNG player. At the same time we are still focused on our existing business model that is committed to delivering uninterrupted natural gas to the Russian domestic market. This part of our CONSERVATIVE FINANCIAL business generates sustainable operating POLICIES cash flows to fund our large LNG ambitions. SUSTAINABILITY REPORT 2017 Our strategy 16

NOVATEK is well-positioned to keep growing in the short and long term thanks to its unique reserve base and low cost Progress of the Yamal LNG project Key project advantages of production and processing, innovative technologies, highly qualified management team and staff, strong corporate • Large onshore conventional reserve base with high • In December 2017, Yamal LNG commenced producing LNG at the concentration of reserves. governance practices, and prudent and first LNG train, with the nameplate capacity of 5.5 million tons effective financial policy. per annum. • Well-known geology and proven development technologies. • On the 8 December 2017,the first LNG cargo loaded onto the Christophe de Margerie tanker at the Sabetta sea port destined to international markets. • Very low F&D and lifting costs.

• As at the year-end, the overall project progress was 91%. • High efficiency of gas liquefaction due to sub-zero temperatures.

• As at 31 December 2017, the South-Tambeyskoye field had 683 bcm Access to European and Asia-Pacific markets. of natural gas and 21 mmt of liquids of proved reserves under the • SEC methodology.

• Over the year, the project saw the drilling of 103 production wells and the delivery of all 142 modules for three LNG trains to the site, with 137 installed on prepared foundations.

• Long-term contracts were signed for over 95% of LNG produced from the project. SUSTAINABILITY REPORT 2017 Our strategy 17

The Company has a number of key Our competitive strengths competitive advantages to successfully implement its strategy: the size and structure of its hydrocarbon resource base; • Unique reserves in Western Siberia the close proximity of existing infrastruc- Reserves, production • Low cost of production and processing Long-term sustainable growth of production ture to core producing fields; a well-de- and processing • Efficient liquid hydrocarbon production and marketing veloped customer base for natural gas • sales; its own facilities for gas condensate processing and product exports; and a Efficient use of state-of-the-art technology to monetize the resource base well-developed marketing channel for liq- • High-tech projects to build processing facilities uefied petroleum gas (LPG). Development Technology and • Track record of LNG projects in the Arctic Circle of LNG production capacities and LNG innovation • • Construction of LNG plants using innovative gravity-based structures (GBS) export sales is a key strategic priority for • Proprietary liquefaction technology adapted to Arctic conditions the Company. Another core priority is to increase production within the reach of the Unified • Transparent governance structure Gas Supply System (UGSS) through devel- Company and • Experienced management, highly qualified technical staff opment of new fields and exploration people • High standards of corporate governance, transparency and sustainability activities, and complimented by acquisi- • Solid track record of complex projects tions that meet certain criteria. Our high level of operational flexibility and our consistent and efficient use of leading edge • Strong financial and operational performance technologies in production and process- Compelling business model Finance • ing practices as well as our adherence • Low financial leverage and strong credit metrics to sound and prudent business manage- • Reputation of a first-class borrower in global capital markets ment support our competitive position. Our commitment to social responsibility and to observing the latest environmen- • Robust financials tal, health and safety standards are inte- Investment-grade • Vertically integrated business model gral parts of NOVATEK’s development credit rating • Abundant and low cost conventional reserves that can be effectively monetized strategy. • Yamal LNG fully financed and on track SUSTAINABILITY REPORT 2017 Our strategy 18

NOVATEK’s strategy for 2018–2030 OG9 Goals Objectives Sustainability priorities

Environmental responsibility Organic growth of resources in the Yamal-Nenets Autonomous Region, • • Local development Increase resource including the Yamal and Gydan peninsulas • base Stakeholder engagement • Strategic acquisitions and participation in auctions for mineral rights • • Ethical business practices

• Environmental responsibility Responsibility to employees Production growth through the development of scalable LNG projects and • • Local development Increase deeper Jurassic and Achimov layers • Charity and sponsorship production Full utilization of Ust-Luga processing capacities • • Stakeholder engagement • Value accretive acquisitions • • Ethical business practices • Occupational safety

• Maintaining the status of a lowest cost oil and gas producer globally • Responsibility to employees Maintain low-cost Cost structure optimization through strategic investment of capital Stakeholder engagement structure • • • Optimization of the LNG value chain (production, liquefaction, logistics) to • Ethical business practices reduce costs and offer competitively priced LNG • Occupational safety

• Increase in margins through value added projects, including Ust-Luga facility and LNG projects (Yamal LNG, Arctic LNG 2, etc.) • Local development Maximize margins • Expansion of marketing activities throughout the LNG value chain • Stakeholder engagement • Exploring new market opportunities in bunkering and motor fuel markets • Ethical business practices

Leveraging of the Northern Sea Route and development of key transshipment • Stakeholder engagement Optimize points • Ethical business practices marketing Diversification of the LNG trading portfolio • channels • Environmental responsibility • Development of strategic partnership with peers in key markets • SUSTAINABILITY REPORT 2017 Our strategy 19

SUSTAINABLE DEVELOPMENT In its operations, NOVATEK seeks to aligning the Company’s strategic goals All of our new projects, like our flag- development as well as NOVATEK’s eco- comply with sustainability principles and accordingly. We see sustainable devel- ship Yamal LNG project, adhere to the nomic, environmental and social policies, takes into account the interests of all stake- opment as a cornerstone of our future sustainable development principles of along with governance, business ethics, holders when making decisions. Our new growth and key to expanding our footprint NOVATEK. Our key projects rely on best procurement transparency etc. strategy for 2018–2030 considers a variety and achieving industry leadership. practices of international sustainability of social and economic factors while also

Sustainable development goals

Environmental Responsibility to Local development Charity and Stakeholder Ethical business Occupational safety responsibility employees sponsorship engagement practices

Mitigating environmental Providing competitive Improving living Systematization of Respect for the rights Zero corruption policy Compliance with the impact salaries and career standards for local charitable activities and interests of all best health and safety opportunities communities stakeholders standards

Sustainable use Social support to Support to local Targeted and efficient Balance between Effective and Innovation of natural resources employees through communities, including social investments economic feasibility transparent corporate and land dedicated programs indigenous minorities of and stakeholder governance framework the North expectations

Exercising reasonable Equality and non- Social partnership with Transparent charitable Ongoing dialogue Respect of human rights Health and safety care in implementing discrimination regional authorities activities and partnership with and freedoms monitoring, audits and projects stakeholders certification

Biodiversity Personnel training and Educational and cultural Equal access to Transparency and Good business Emergency conservation development programs charitable support under information availability reputation preparedness relevant corporate programs to everyone in need of help

Investment in Creating a safe and Factoring in stakeholder low‑carbon healthy environment requests and feedback economy in sustainability reports

Compliance with global environmental standards SUSTAINABILITY REPORT 2017

STAKEHOLDER ENGAGEMENT SUSTAINABILITY REPORT 2017 S tAKEHOLDER engagement 21 Stakeholder engagement

102-40 STAKEHOLDER ENGAGEMENT Stakeholder engagement principles: ly dependent on the Company’s perfor- 102-42 PRINCIPLES 102-43 mance and sustainability. • openness and transparency of the The stakeholder NOVATEK seeks to engage stakehold- To ensure productive communication, Company; universe ers in the most effective and efficient way NOVATEK uses all the engagement tools • respecting the rights and interests of by leveraging all communication chan- available: all stakeholders, no discrimination; Shareholders nels and methods. The Company prompt- • conferences, round tables, joint • responding to all stakeholder requests; • ly responds to stakeholders’ requests, is working groups, panels; • readiness to dialogue; • Investors and analysts open to meaningful dialogue, and respects meetings; business integrity, no corruption. • • • Employees their interests and concerns. • conference calls, telephone NOVATEK’s stakeholder universe is conversations; • Trade unions quite diverse given the scale of the Com- conducting and participating in surveys; • • Federal and local authorities pany’s business and its impact on the • media events; economy and social environment in the • site visits for investors and journalists; • Local communities regions of presence, as well as on the • letters and emails in response to • Partners development of the oil and gas sector in queries; Suppliers and contractors Russia and globally. The Company plac- • annual and sustainability reports, press • es a special focus on such key stakehold- releases, presentations and other • Customers er groups as shareholders, employees information materials, social media; • Civil society organizations and communities, as their welfare is direct- • 24/7 Security Hotline. • Industrial and academic community • Media

Covers of prior Sustainability Reports SUSTAINABILITY REPORT 2017 S tAKEHOLDER engagement 22

STAKEHOLDER ENGAGEMENT MATRIX 102-44 Channels Frequency Key events in 2017 Focus areas

SHAREHOLDERS Shareholder meetings at least once a year Annual General Meeting of Shareholders held on 21 April 2017 Profit distribution, dividends, annual report approval Extraordinary General Meeting of Shareholders held on 29 September 2017 Appointment and remuneration of the Board of Directors Press releases and corporate action all-year-round Shareholder queries replied to; public information prepared and disclosed and Revision Commission notices Approval of external auditors Shareholder queries (via phone and mail) all-year-round

Financial disclosures quarterly, annually

Annual and sustainability reports annually

Corporate Secretary all-year-round

INVESTORS AND ANALYSTS Press releases and corporate action all-year-round Financial results disclosure and conference calls held quarterly and annually The Company’s development strategy and key projects notices The Strategy Day held on 12 December 2017 The Company’s operating and financial performance Financial results disclosure and conference quarterly, annually 34 key industry investment conferences attended The Company’s competitive position calls Apart from the conferences, over 250 meetings held in key financial markets Company and industry outlook Annual and sustainability reports annually 43 press releases published Sustainable development Inclusion in leading sustainability rankings all-year-round Investor and analyst queries replied to; public information, including FTSE Russell, for investors Vigeo Eiris and Sustainalytics indices, prepared and disclosed One-on-one and group meetings, all-year-round NOVATEK included in the global FTSE Russell’s FTSE4Good index conference calls, presentations NOVATEK included in the Vigeo Eiris Best Emerging Market Performers ranking (Top Investor requests ad hoc 100 EM companies) Carbon Disclosure Project and Water Disclosure questionnaires completed Participation in the Carbon Disclosure annually The Oil & Money conference (London) and the X Eurasian Economic Forum (Verona) Project (CDP) and CDP Water Disclosure speaker and attended Site visits ad hoc The annual Energy Exchange European Gas Conference (Vienna, Austria) speaker and attended Information update on the corporate all-year-round GE Oil & Gas Summit 2017 (Florence, Italy) speaker and attended website The annual Vostock Capital LNG Congress Russia 2017 speaker and attended Participation in conferences, summits all-year-round Flame 2017 (Amsterdam) speaker and attended The IEL/SEERIL International Oil and Gas Law Conference (London) speaker and attended The Russian Energy Forum (London) speaker and attended The Budapest LNG Summit speaker and attended SUSTAINABILITY REPORT 2017 S tAKEHOLDER engagement 23

Channels Frequency Key events in 2017 Focus areas

102-44 EMPLOYEES (including family members and retired employees) In-person meetings of the management all-year-round Implementation of social programs pursuant to the approved Fundamental Advanced training for staff with employees Concept of Social Policy Social benefits and guarantees Corporate social programs all-year-round Workplace health and safety training and appraisal of employees Workplace health and safety Collective bargaining agreements all-year-round Issue of a corporate newspaper and magazine Employee compensation system improvement Health resort treatment for employees arranged Corporate media all-year-round Cultural training in key art movements of the 20th and 21st A forum of NOVATEK Group’s executives devoted to the shift from operational to centuries Educational and advanced training all-year-round strategic management held Promotion of healthy lifestyle and sports among employees programs The 12th Interregional Research-to-Practice Conference for the Company’s young and their families Steps in Discovering Talents program for all-year-round specialists held young specialists Excursions to partner museums, lectures on the 20th and 21st century art history Developing and improving the Corporate all-year-round and attendance of theater performances and classical music concerts organized Technical Competency Assessment for employees and their family members System program for various lines of business Cultural, entertainment and sports events for employees and their families held, Sustainability reports annually corporate clubs for acrobatic rock’n’roll set up Employees were given an opportunity to attend matches featuring the Russian Security Hotline annually, 24/7 national football team, Russian men’s and women’s volleyball championships, tournaments with the participation of the Student Basketball Association teams Cultural and sports events all-year-round and acrobatic rock’n’roll and boogie-woogie competitions

TRADE UNIONS Discussion and signing of collective once every three years Four meetings with trade unions held, attended by the Company’s management Performance under collective bargaining agreements bargaining agreements Workplace health and safety Discussion and signing of addenda to ad hoc collective bargaining agreements Protection of employees’ rights and interests Participation of the Company's all-year-round management in trade union committee meetings Attendance of trade union conferences by all-year-round the Company's management Participation in joint workplace health and all-year-round safety committees Joint efforts as regards recreational, all-year-round sports and cultural events Sustainability reports all-year-round SUSTAINABILITY REPORT 2017 S tAKEHOLDER engagement 24

Channels Frequency Key events in 2017 Focus areas

102-44 GOVERNMENT AUTHORITIES Federal

Contribution to law-making all-year-round Participation in the activities of the Government Commission on the Fuel and Development of the fuel and energy sector under the current Energy Complex, the Reserve Replacement and Improving the Economy’s Energy and projected conditions Efficiency Preparation of the draft Energy Strategy of Russia Through 2035 Participation in working groups, meetings, all-year-round Interaction with the State Duma and the Federation Council of the Federal Preparation of proposals for the State Commission for round-table discussions, conferences, Assembly of Russia, which includes taking part in commission, committee, working Arctic Development forums group and expert council meetings, and other activities Developing the Arctic transport system Participation in the activities of the Marine Board under the Government of the Energy efficiency and energy development Russian Federation Eliminating administrative barriers in the subsoil and natural Participation in the activities of the Russian-Asian Pacific and Russian-European resource use intergovernmental commissions on energy, economic, industry and R&D Implementation of the General Scheme for the Gas Industry cooperation Development Through 2030 Emission reduction Engagement with the State Commission for Arctic Development and working groups on energy development, transport system development, the improvement Industrial safety of the legal framework, social and economic development, and with the activities Replacement of mineral resources of a temporary working group tasked with the Arctic shelf regulatory framework improvement Draft Concept for Development of the Common Gas Market in the Eurasian Economic Union Taking part in the activities of a working group on the removal of administrative Protection of Northern indigenous peoples rights barriers at the Government Commission on the Use of Natural Resources and Environmental Protection Development and approval of Best Available Technology (BAT) reference documents Participation in the Interdepartmental working group on reducing the dependence Integration of a corporate GHG emissions management of the Russian fuel and energy sector on imported equipment, spare parts, system accessories and software, as well as services of foreign providers, and developing the Russian oil and gas industry

Participation in the Interdepartmental working group tasked with the development of the Program for Development of the Common Gas Market in the Eurasian Economic Union Engagement with the Expert panel for the creation of a mechanism ensuring state support of consumers of import substitution products under the Russian Ministry of Industry and Trade

Cooperation with the Russian Gas Society

Participation in the events organized by the Russian Union of Industrialists and Entrepreneurs (RSPP) Participation in the activities of the Committee on Environment and Environmental Management of the Chamber of Commerce and Industry of the Russian Federation

Participation in the Steering Committee for the Preparation for Russia’ s Year of Ecology 2017 under the Civic Chamber of the Russian Federation Participation in the St Petersburg International Economic Forum, the Eastern Economic Forum

Participation in the international forum on Energy Efficiency and Energy Development – Russian Energy Week, 7th Arctic: Today and the Future International Forum, the Arctic: Territory of Dialogue International Arctic Forum, International Legal Arctic Forum – Conservation and Sustainable Development of the Arctic: Legal Aspects, 7th St Petersburg International Legal Forum, 4th annual international geological forum Geological Exploration 2017, third All-Russian Forum of Subsurface Users, second Eurasian Mining Geology Forum, as well as participation in the work of the steering committees of the forums SUSTAINABILITY REPORT 2017 S tAKEHOLDER engagement 25

Channels Frequency Key events in 2017 Focus areas

102-44 Participation in the International Exhibition-Forum ECOTECH

Participation in government delegations to foreign business events Participation in technical working groups of Rosstandart’s Best Available Technology Bureau focusing on natural gas production and waste disposal and decontamination (other than thermal decontamination (incineration)) Implementation of the quadripartite Cooperation Agreement between NOVATEK, the Russian Ministry of Natural Resources and Environment, the Federal Service for Supervision over Natural Resource Management and the Government of the Yamal-Nenets Autonomous Region in accordance with Russia’s Year of Ecology Key Events Plan in 2017 The Environment Protection Plan for NOVATEK’s controlled and affiliated companies approved by the Chairman of the Management Board as part of the 2017 Year of Ecology initiatives Participation in the round table on the model of government regulation of greenhouse gas emissions held by the Russian Ministry of Energy The annual Vostock Capital LNG Congress Russia 2017 attended

Local Interaction under cooperation agreements all-year-round Implementation of social and economic programs pursuant to agreements with Economic development of the regions on social and economic development of the Government of the Yamal-Nenets Autonomous Region, as well as municipalities Improving living standards, educational programs local communities of the Yamal-Nenets Autonomous Region, and governments of the Kostroma, Leningrad, Tyumen and Chelyabinsk Regions Utility and transport infrastructure development Participation in meetings, round-table all-year-round Protection of Northern indigenous peoples rights discussions, conferences, forums, etc. Participation in the Yamal Oil and Gas 2017 exhibition and conference Disclosure of information on the all-year-round Implementation of promising LNG projects Company's operations in the local media Press tours and site visits for journalists, interviews with the Company’s Company’s operations, social programmes management LOCAL COMMUNITIES Cooperation agreements on social all-year-round Targeted programs and disbursements to Northern indigenous peoples (as Employment and economic development of local provided for by the Agreement with the Yamal-Nenets Autonomous Region Financing the construction and repairs of the utility and communities Government) transport infrastructure Interaction with associations of the all-year-round Financial support provided to the Russian Association of Indigenous Peoples of the Preserving the national identity of Northern peoples indigenous minorities North, Siberia and Far East Supporting low-income population Targeted support to welfare beneficiaries ad hoc Financial support provided to Yamal for Descendants Association and its district Social programs branches Interaction of industrial enterprises with indigenous Disclosure of information on the all-year-round Financing purchases of equipment and supplies for the indigenous minorities minorities Company's activities in the local media Press tours and site visits for journalists, interviews with the Company’s Population surveys ad hoc employees, introduction of social programs

Sustainability reports annually Participation in the 7th Arctic: Today and the Future International Forum

Security Hotline 24/7 SUSTAINABILITY REPORT 2017 S tAKEHOLDER engagement 26

Channels Frequency Key events in 2017 Focus areas

102-44 PARTNERS UNDER JOINT INITIATIVES Cooperation agreements all-year-round Effective interaction under joint initiatives and cooperation agreements Joint initiatives The International Natural Gas, LNG and LPG Gastech Conference and Exhibition Partnership prospects Joint initiatives all-year-round in Tokyo, the Oil & Money conference in London, the Russian Energy Week and the Import substitution Arctic: Territory of Dialogue International Arctic Forum attended Forum and meetings with potential Arctic LNG 2 partners organized Shareholder meetings all-year-round The World Economic Forum in Davos attended

Management meetings all-year-round The annual Energy Exchange European Gas Conference (Vienna, Austria) attended

Working group meetings all-year-round GE Oil & Gas 2017 (Florence, Italy) attended Security Hotline 24/7 Flame 2017 (Amsterdam) attended Briefings ad hoc The Russian Energy Forum (London) attended The Budapest LNG Summit attended Participation in exhibitions and all-year-round conferences SUPPLIERS AND CONTRACTORS Supplier selection process all-year-round, using Meetings with manufacturers of oil and gas equipment and materials organized, Equipment specifications, pricing, delivery terms, supply an electronic bidding strategic agreements entered into with key partners chain management platform (as needed) Arctic LNG 2 forum held to ensure maximum efficiency of LNG facilities with Industrial safety minimum capital expenses (over 150 participants from 50+ major Russian Participation in trade shows, forums and all-year-round Import substitution potential companies) other events Participation of Russian producers and manufacturers in the Qualification assessment for Russian producers conducted, including for the Arctic LNG 2 project Arctic LNG 2 project Replies to queries received via the official all-year-round as per Relations with suppliers and contractors website (Sales and Tenders page) requests Participation in Russian and international procurement conferences, exchange of experience with the largest Russian and international manufacturers and Best practices in procurement Qualification procedures for suppliers (incl. all-year-round engineering companies facility audits) Preventing abusive practices when signing contracts Procurement via an electronic bidding platform introduced Security Hotline 24/7

CUSTOMERS Telephone enquiry service daily Queries received via the telephone enquiry service processed Service quality improvement Questions on technical support of services and proposals on improving Customer Customer support Customer Account service and Contact Us 24/7 Account replied to Tariff regulation forms on the website Daily interaction with business customers arranged Payment calculations Contact Information all-year-round Payment discipline Security Hotline 24/7 Connection agreements Gas supply agreements Counterparty Account service for business 24/7 customers Meetings on payment discipline all-year-round

Publication of information in the media all-year-round SUSTAINABILITY REPORT 2017 S tAKEHOLDER engagement 27

Channels Frequency Key events in 2017 Focus areas

102-44 CIVIL SOCIETY ORGANIZATIONS Membership and cooperation all-year-round Cooperation with V. I. Vernadskiy Non-Governmental Environmental Fund Preserving biodiversity and biological resources Environmental protection Participation in conferences, forums and all-year-round Cooperation with the World Wide Fund for Nature (WWF) other events Environmental aspects of the Sabetta seaport construction in the Gulf of Ob Sustainability reports annually Cooperation with the Marine Mammal Council on preservation and study of the Atlantic walrus in the south-eastern Barents Sea and adjacent waters (as part of Waste and water resource management in the oil and gas the Yamal LNG project) industry Implementation of the next stage of the Biodiversity Program and the Marine Sustainable development Mammal Preservation Strategy for the Yamal LNG project as per clause 4 of Taxation Instruction of the President of the Russian Federation No. 1530 and pursuant to International Finance Corporation Performance Standard 6 Cooperation with Carbon Disclosure Project (CDP) on carbon emissions and water use NOVATEK acted as a partner of the Wild Nature – Save and See section of the annual Exhibition-Forum ECOTECH 2017 An exhibition of children’s drawings devoted to the Year of Ecology in Russia and protection of the Far North nature was held in Tarko-Sale Employees of NOVATEK and its controlled entities took part in the Russian national environmental campaign Green Spring 2017 Cooperation with Eurasian Center for the Study and Conservation of Far Eastern Leopards, an independent non-profit organization Cooperation with the Amur Tiger Centre, an independent non-profit organization

SOCIETY Interaction with leading sports and cultural all-year-round Support of major Russian museums, theaters and creative teams Support and development of cultural projects institutions Support and implementation of sports projects and programs Sports promotion Interaction with non-profit organizations all-year-round Charitable support of children in dire need suffering from different illnesses, Philanthropy and sponsorship efforts patronage assistance to orphanages and elderly people Provision of support and financing to orphanages and Philanthropic efforts all-year-round residential care facilities Assistance in socialization of children deprived of parental Volunteer movements all-year-round care

MEDIA Press releases all-year-round 43 press releases published The Company’s prospects, the Development Strategy Six visits to the Company’s regional facilities organized Media coverage of the Company’s current operations and Press tours all-year-round 12 briefings for journalists from foreign and federal media held implementation of key projects A meeting of Chairman of the Management Board Leonid Mikhelson with chief Comments on matters relevant to the oil and gas sector Interviews and comments from top all-year-round editors of the leading Russian media held executives 40+ prompt comments generated on topics relevant to the Company Briefings, press conferences all-year-round More than 67.8 thousand publications issued in Russian and foreign media in 2017 Comments and replies to media requests all-year-round as per requests Drafting articles and information materials all-year-round for the media SUSTAINABILITY REPORT 2017 S tAKEHOLDER engagement 28

Channels Frequency Key events in 2017 Focus areas

102-44 INDUSTRIAL COMMUNITY, including academic and research community Participation in conferences, forums, all-year-round The International Natural Gas, LNG and LPG Gastech Conference and Exhibition Promising projects being implemented by the Company round-table discussions, etc. in Tokyo, the Oil & Money conference in London, the 10th Eurasian Economic Forum Development of the fuel and energy sector and the oil and in Verona, the Russian Energy Week, the Arctic: Territory of Dialogue International Participation in joint sessions as per request gas industry in general Arctic Forum, the Arctic: Today and the Future forum and the International Exhibition-Forum ECOTECH, etc. attended Economic performance Partnerships as per events calendar Industrial safety August 2017 saw the 7th International Meeting of Representatives of Arctic Council Competition development Cooperation with leading oil and gas all-year-round Member States, Observer States and Foreign Scientific Community in Sabetta universities The World Economic Forum in Davos attended Engagement with the Society for Gas as a all-year-round Participation in meetings held by relevant ministries and agencies. Participation in Marine Fuel (SGMF) and SEA\LNG government delegations to international negotiations and meetings

NOVATEK-VUZ program implementation Novatek Gas and Power, NOVATEK’s subsidiary, joined the Society for Gas as a Marine Fuel (SGMF) and SEA\LNG promoting the use of liquefied natural gas (LNG) as a marine fuel

The annual Energy Exchange European Gas Conference (Vienna, Austria) attended

GE Oil & Gas 2017 (Florence, Italy) attended

The annual Vostock Capital LNG Congress Russia 2017 attended Flame 2017 (Amsterdam) attended

The IEL/SEERIL International Oil and Gas Law Conference (London) attended

The Russian Energy Forum (London) attended

The Budapest LNG Summit attended SUSTAINABILITY REPORT 2017

CORPORATE GOVERNANCE SUSTAINABILITY REPORT 2017 Corporate governance 30 Corporate governance

CORPORATE GOVERNANCE SYSTEM 102-18 The key documents pertaining to Pursuant to the Articles of Association, agement Board (collegial executive body) revised Regulations on Information Policy, NOVATEK’s corporate governance the General Meeting of Shareholders, as proposed by the Chairman of the Man- taking into account recommendations of include: the Company’s supreme governing body, agement Board. the Corporate Governance Code. • NOVATEK’s Articles of Association elects members of the Board of Direc- In 2017, to enhance efficiency of its cor- During the Strategy Day on 12 Decem- • Corporate Governance Code tor and the Chairman of the Management porate governance, the Company updat- ber 2017, the Company identified improv- • Code of Business Conduct and Ethics Board (sole executive body). The Board ed its information policy. On 25 August ing in its corporate governance policies • Regulations on the Corporate of Directors elects members of the Man- 2017, the Board of Directors approved the and regulations as one of its priorities. Secretary • Internal Audit Policy • Regulations on Risk Management and Internal Control System.

PAO NOVATEK’s corporate governance structure NOVATEK has a streamlined corporate governance structure that makes it pos-

sible to effectively manage the Compa- Supreme governance body

ny’s operations. Committed to sustainable General Meeting of Control bodies development, the Company goes beyond Shareholders mandatory compliance with Russian laws Revision and internal regulations: it adheres to a Commission variety of standards, codes, and Rus- Strategic governance body sian and international best practices. Board of Directors NOVATEK strives to take full account of Board Committees corporate governance principles specified in the Corporate Governance Code Remuneration Strategy and Nomination Audit Committee recommended by the Central Bank of Committee Committee Russia, and to meet requirements of the UK Corporate Governance Code and those of the Regulation of the European Chairman of the Parliament and of the Council on market Management Board (CEO) abuse.

Collegial executive body Management Board

Corporate Business Internal Audit Secretary units Division SUSTAINABILITY REPORT 2017 Corporate governance 31

102-18 General Meeting of Shareholders 102-21 On 29 September 2017, the Extraor- Board of Directors The current members of the Board of 102-23 The General Meeting of Sharehold- dinary General Meeting of Shareholders Activities of the Board of Directors Directors were elected at the Annual Gen- 102-24 102-26 ers is NOVATEK’s supreme governing approved interim dividends for 1H 2017. are governed by the laws of the Russian eral Meeting of Shareholders on 21 April 102-27 body. Activities of the General Meeting The Company places special empha- Federation, the Company’s Articles of 2017. The Board of Directors comprises of Shareholders are governed by the sis on enabling efficient communications Association, and the Regulations on the nine members, of which eight are non-ex- laws of the Russian Federation, the Com- with shareholders and keeping them “up Board of Directors. The Board members ecutive directors, including three inde- pany’s Articles of Association, and the to date” about the Company’s activities, are elected by the General Meeting of pendent directors. The Board Chairman is Regulations on the General Meetings of current matters and projects. Sharehold- Shareholders. Alexander Natalenko, who does not serve Shareholders. ers and other stakeholders may seek NOVATEK’s Board of Directors are as the Company’s executive director. The The General Meeting of Shareholders clarification of any matters or request any responsible for overall management and Chairman is responsible for leading the is responsible for the following: additional information by sending a let- for defining the Company’s business pri- Board and ensuring its effectiveness. • approval of annual reports, annual ter to the attention of the Chairman of the orities and strategy. Members of the Board have a wide accounting (financial) statements; Board of Directors and Chairman of the The Board of Directors has the follow- range of expertise in strategic, operational • profit distribution, including dividend Management Board. For these purposes, ing remit: and financial areas as well as professional payout; the Company’s website contains neces- • define the Company’s strategy and experience in oil and gas activities. These • election of the Board of Directors and sary contact details, including a separate priority lines of business; are mandatory skills and knowledge the Revision Commission; email address for shareholder queries: • approve long-term and annual for nominees to the Board of Directors. • approval of the Company’s Auditor. [email protected]. business plans; Members hold regular meetings with the The Chairman of the Management • review financial performance, internal Company’s senior management to gain a On 21 April 2017, the Annual Gener- Board and his deputies in charge of var- controls, risk management and other detailed understanding of the Company’s al Meeting of Shareholders approved ious business areas take part in interna- matters; business activities, strategy, and key risks. the annual report and annual account- tional forums and conferences providing • optimize the corporate and capital The Board of Directors also has access to ing (financial) statements prepared under stakeholders with an update on the Com- structure; the Company’s medium-level managers Russian Accounting Standards (RAS); pany’s activities. In addition, during the • approve major transactions; for formal and informal meetings to dis- approved profit distribution and dividends Annual General Meetings of Sharehold- • decision-making on investment cuss various matters and ensure regular for 2016; elected the Board of Directors ers attended by members of the Board projects; exchange of information needed to par- and the Revision Commission; approved of Directors and the Management Board, • recommend the dividend per ticipate in the Board meetings and make the remuneration payable to the mem- the meeting procedure provides for an share amount and dividend payout balanced decisions in a timely manner. bers of the Board of Directors and the option to ask questions about the Compa- procedure; Efficient operation of the Board of Revision Commission; and approved the ny’s business. Another type of interaction • convocation of the General Meeting of Directors is supported by the Corporate external auditor for 2017. is the Company’s quarterly conference Shareholders. Secretary, who has sufficient indepen- calls on its financial performance under dence (appointed and dismissed by the the IFRS. Board of Directors) and endowed with the necessary powers and resources to carry out the tasks as set out in the Regulations on the Corporate Secretary. SUSTAINABILITY REPORT 2017 Corporate governance 32

102-22 Board of Directors as at 31 December 2017 102-28 The Board of Directors meets as and 102-33 when required, but at least once every two months. The meeting agenda is set Full name Independent* Position on the Board of Directors / Board Committees by the Chairman of the Board of Direc- tors based on a request to convene the Chairman of the Board of Directors since 2004 Alexander E. Natalenko meeting, which can be initiated by the Chairman of the Strategy Committee Chairman or members of the Board of Member of the Board of Directors since 2006 Directors, Revision Commission, audi- Andrei I. Akimov Member of the Strategy Committee tor, executive body, as well as sharehold-

ers jointly holding at least 10% of ordinary Member of the Board of Directors since 2008 Burckhard Bergmann shares. Member of the Strategy Committee Pursuant to the Regulations on Per- Member of the Board of Directors since 2015 formance Assessment of the Board of Michael Borrell Member of the Strategy Committee Directors and the Board Committees, the Company provides for the process of Independent director since 2015 conducting internal self-assessment and Robert Castaigne Independent Member of the Remuneration and Nomination Committee external assessment on Board members Member of the Audit Committee and the Board Committees. Self-assess- Member of the Board of Directors since 2003 ment is an in-house assessment run annu- Leonid V. Mikhelson Executive Chairman of the Management Board ally by completing questionnaires by each

member of the Board of Directors, while Independent member of the Board of Directors since 2014 external assessment is to be hold by an Victor P. Orlov Independent Chairman of the Remuneration and Nomination Committee independent qualified advisor at least Member of the Audit Committee three times a year. The outcomes of both Member of the Board of Directors since 2009 Gennady N. Timchenko assessments are included in the Compa- Member of the Strategy Committee ny’s annual report and delivered at the reporting meeting of the Board of Direc- Independent director since 2014 tors to be considered while preparing an Andrei V. Sharonov Independent Chairman of the Audit Committee Member of the Remuneration and Nomination Committee action plan for the next corporate period.

* Independent director as at 31 December 2017 as defined by the UK Corporate Governance Code and the Corporate Governance Code recommended by the Central Bank of Russia. SUSTAINABILITY REPORT 2017 Corporate governance 33

Activities of the Board of Directors in corporate year 2017* Board Committees 102-18 102-29 The Board of Directors’ meetings are • resolved to establish NOVATEK’s The Company has three Board Com- experience for assessments and recom- 102-33 convened on a regular basis at least once Management Board, with the number mittees: Audit Committee, Remuneration mendations in the respective areas of the 102-34 every two months. In the corporate year of members decreased from twelve to and Nomination Committee, and Strate- Company’s activities. of 2017, the Board of Directors held nine eleven people; gy Committee. The Committees’ activities In order to carry out their duties, the meetings, with five held in absentia. The • approved the Regulations on are governed by the specific Committee Committees may request information or Board considered and resolved on the Performance Assessment of the Board Regulations approved by the Board of documents from members of the Com- following key matters: of Directors and the Board Directors and available on the Company’s pany’s executive bodies or heads of the • considered and approved the Committees; website. Company’s relevant business units. The Company’s operational and financial • held self-assessment of the Board of The Committees play a vital role in Committees may engage experts and results for 2017; Directors and the Board Committees ensuring that high standards of corpo- advisors with required professional knowl- • issued recommendations on payments that served as the basis for the Board rate governance are maintained through- edge and skills to provide an unbiased of interim dividends for 1H 2017 and of Directors to commend the out the Company and that all specific view on respective matters. annual dividends for 2017; Company’s strategy, corporate decisions are analysed and the neces- • made resolutions on the convocation governance, interaction between the sary recommendations are issued prior of the Extraordinary and Annual management and the Board of to general Board discussions. The Board General Meetings of Shareholders in Directors as well as overall arrange- Committees conduct annual reviews of 2017 that relied on telecommunication ment of, and preparation for, meetings the Company’s risk map and risk appetite, channels for the first time, enabling for the Board of Directors and the HR policy and personnel development, shareholders to remotely participate in Board Committees; as well as occupational health and safety the General Meeting of Shareholders • approved the revised Regulations on initiatives. Members of the Board Com- by completing electronic ballot sheets; Information Policy. mittees have the required professional • approved NOVATEK’s corporate strategy from 2018 until 2030; • considered and approved the key metrics for NOVATEK’s business plan Board Committees as at 31 December 2017 for 2018;

Audit Committee Strategy Committee Remuneration and Nomination Committee

Chairman Andrei V. Sharonov Alexander E. Natalenko Victor P. Orlov

Andrei I. Akimov Robert Castaigne Burckhard Bergmann Robert Castaigne Members Victor P. Orlov Michael Borrell Andrei V. Sharonov * From the Annual General Meeting of Shareholders Gennady N. Timchenko of 21 April 2017 to the Annual General Meeting of Shareholders of 20 April 2018. SUSTAINABILITY REPORT 2017 Corporate governance 34

102-19 Audit Committee Management Board 102-20 Remuneration and Nomination First Deputy Chairman of the Manage- 102-31 The Audit Committee controls the Committee The Management Board is a colle- ment Board is responsible for achieving Company’s financial and operating The primary function of the Remu- gial executive body responsible for the objectives and handling matters related activities. In order to assist the Board in neration and Nomination Committee is day-to-day management of the Compa- to environmental safety, and oversees the performing control functions the Audit to develop an efficient and transparent ny’s operations. The Management Board HSE Department, LNG Projects Depart- Committee is responsible for, including practice for remuneration of members of is governed by the laws of the Russian ment, and Procurement and Localization but not limited to, evaluating the accuracy the Company’s management, including Federation, NOVATEK’s Articles of Asso- Department. and completeness of the Company’s full members of the Board of Directors and ciation, and by decisions of the General Economic matters fall within the remit year financial statements, the candidature the Management Board. The Remuner- Meetings of Shareholders and the Board of Deputy Chairman of the Management of the Company’s external auditor and the ation and Nomination Committee is also of Directors, as well as the Company’s Board for Economics and Finance, who auditor’s report, and the efficiency of the responsible for building a stronger Board internal documents. oversees the Consolidated Reporting Company’s internal control procedures of Directors and enhancing its perfor- Department, Finance Department, Strate- and risk management system. The Audit mance. The Committee holds reviews of gic Planning Department, Budgeting and Committee has an independent member social and HR matters twice a year. Matters reserved to the Efficiency Management Department, and of the Board of Directors, who has a solid In the corporate year of 2017, the Management Board are Risk Control Service. track record in finance required to carry Remuneration and Nomination Committee stated in NOVATEK’s Articles Social matters are the responsibility of out financial reviews. met four times. of Association. the Deputy Chairman of the Management The Audit Committee works actively Board – Director of the Legal Department, with the Revision Commission, the exter- Strategy Committee who delegates achievement of social nal auditor and the Company’s executive The primary functions of the Strate- The Management Board helps achieve objectives to the HR Department and the bodies, inviting NOVATEK’s managers gy Committee are the determination of objectives set by the Board of Directors Social Development Department. responsible for the preparation of finan- strategic objectives of the operations and and implement the Company’s strate- The Board of Directors elects mem- cial statements to attend the Committee control over the implementation of the gy through supervision of business units bers of the Management Board from the meetings. strategy, as well as recommendations on in certain areas, including operational, Company’s key employees. The Man- The Audit Committee runs an annual the dividend policy. The Strategy Com- environmental, financial and economic, agement Board reports to the Board of performance assessment and reports the mittee is also responsible for the evalua- social and legal. Members of the Manage- Directors and the General Meeting of results to the Board of Directors, also pro- tion of the long-term effectiveness of the ment Board report to its Chairman. Dep- Shareholders. The Chairman of the Man- viding it with reports on its performance at Company’s operations. uty Chairmen of the Management Board agement Board is responsible for lead- least once a year. In the corporate year of 2017, the Strat- are in charge of economic, environmen- ing the Board, ensuring efficiency and In the corporate year of 2017, the Audit egy Committee met three times. tal, social and other matters related to the performance, organizing its meetings as Committee met four times. Company’s business. well as implementing resolutions of the General Meeting of Shareholders and the Board of Directors. In 2017, the Company’s Management Board consisted of eleven members. SUSTAINABILITY REPORT 2017 Corporate governance 35

REMUNERATION OF MEMBERS OF THE BOARD OF DIRECTORS AND THE MANAGEMENT BOARD

102-35 The Company takes a responsible and 102-36 Members of the reasonable approach to remunerating Management Board The Regulations on Remuneration and Compensations Payable to as at 31 December members of the Board of Directors and 2017* the Management Board for their contribu- Members of the Board of Directors is the key document regulating tion to the Company’s strategy and their the procedure for calculating remuneration and compensations Leonid V. Mikhelson involvement in operational matters. payable to members of NOVATEK’s Board of Directors. Chairman of the Management Board Remuneration payable to members of Alexander M. Fridman the Board of Directors consists of a fixed First Deputy Chairman of the Management Board part of remuneration, remuneration for attending meetings of the Board of Direc- ation for the performance of his or her ing meetings of committees of the Board Vladimir A. Baskov Deputy Chairman of the Management tors and remuneration for attending meet- functions in the amount of RR 20 mln per of Directors (limited to RR 2 mln per cor- Board ings of the Board committees. corporate year. Members of the Board porate year). Members of the Board of Viktor N. Belyakov Fixed remuneration payable to mem- of Directors also receive remuneration Directors are also compensated for travel Deputy Chairman of the Management bers of the Board of Directors is RR 10 mln for attending meetings of the Board of and lodging expenses related to the dis- Board for Economics and Finance per corporate year. The Chairman of the Directors (limited to RR 3 mln per corpo- charge of their functions. Sergey V. Vasyunin Board of Directors is paid fixed remuner- rate year) and remuneration for attend- Deputy Chairman of the Management Board – Operations Director

Mark Anthony Gyetvay Deputy Chairman of the Management Board Remuneration of members of NOVATEK’s Board of Directors and Management Board in 2017, RR mln Tatyana S. Kuznetsova Deputy Chairman of the Management Board – Director of the Legal Board of Directors** Management Board Department

Igor A. Plesovskikh Total paid, including 134 2,171 Deputy Chairman of the Management Board – Director for Geology Salaries — 667 Ilya V. Tafintsev Director for Strategic Projects Bonuses — 1,471 Lev V. Feodosyev Deputy Chairman of the Management Board – Commercial Director Fees 133 —

Denis G. Khramov Deputy Chairman of the Other compensations and benefits 1 33 Management Board

* For detailed biographies of members of the Management ** Some members of NOVATEK’s Board of Directors also serve as members of the Management Board. Payments to such members for their serving on the Management Board are Board, please see the Annual Report 2017, pp. 79–82. included in the total payments to members of the Management Board. SUSTAINABILITY REPORT 2017 Corporate governance 36

INTERNAL CONTROL AND AUDIT 102-35 Revision Commission Internal audit 102-36 The procedure for and criteria of calcu- NOVATEK has in place a system for lating remuneration of the Chairman and internal control over financial and busi- The Revision Commission is an inter- To ensure a consistent and indepen- members of the Company’s Management ness operations in line with internation- nal control body responsible for oversight dent assessment of the reliability and Board, as well as compensation for their al best practices. The process of internal of the Company’s financial and business effectiveness of the risk management expenses, are set forth in the Regulations control is an integral part of the risk man- activities. The Revision Commission con- and internal control system, as well as on the Management Board and employ- agement process. sists of four members who are elected at of corporate governance practices, the ment contracts signed with the Company. The system of internal control and the Annual General Meeting of Share- Company performs internal audits of its Shareholders are entitled to exercise their audit includes the Board of Directors, holders for a period of one year. The operations and business processes. The voting right to determine the amount of Audit Committee, and the Chairman of the competence of the Revision Commission internal audit function roles and responsi- remuneration payable in accordance with Management Board, Management Board, is governed by Federal Law No. 208-FZ bilities are implemented by the indepen- the “one share, one vote” rule. Revision Commission and Internal Audit On Joint-Stock Companies, by the Com- dent Internal Audit Division. Pursuant to the Regulations, remu- Division. pany’s Articles of Association, and the The Internal Audit Division reports to neration shall be paid to members of the Internal control primarily covers Regulations on the Revision Commission. the Board of Directors and adheres to the Board of Directors based on their per- NOVATEK, its subsidiaries and joint ven- principles and rules of conduct stated in formance every three months. Based on tures, their structural units, as well as their the Code of Ethics for internal auditing of their performance in the corporate year, business processes. the Institute of Internal Auditors along with members of the Board of Directors shall To prevent corruption and mitigate the International Standards for the Profes- also be paid remuneration for attending compliance, operational and reputation sional Practice of Internal Auditing. meetings of the Board of Directors and risks, the Company adopted the Anti-Cor- committees of the Board of Directors. ruption Policy and the Regulations on Risk Management and Internal Control System.

NOVATEK’s Internal Audit Policy is the key document regulating the internal control system. SUSTAINABILITY REPORT 2017 Corporate governance 37

RISK MANAGEMENT 102-15 102-29 The Company’s activities are subject Directors’ Audit Committee. The Com- Operational risks 102-30 to risks inherent only to the Company mittee is responsible for supervising the 102-31 or associated with the Company’s core reliability and efficiency of the risk man- 1. Risks of emergencies and incidents business. agement system and reviewing it. As part 2. Monopoly risks 3. Competitive risks NOVATEK has in place and continu- of its efforts, the Committee helps to mon- 4. Risks related to procurement of materials, equipment, work and services ously develops a multilevel system of risk itor identified risks and to adjust risk mit- 5. Commodity price risks 6. Geological risks management. The powers, duties and igating initiatives as needed. All matters 7. Risks of early termination, suspension or restriction of the right to use subsurface responsibilities for specific risk manage- related to the risk appetite and the risk mineral resources ment procedures are delegated to the management systems are reviewed on an 8. Environmental risks 9. Project risks Company’s governance levels depend- annual basis. 10. Ethical risks ing on the assessment of financial impact On a regular basis, at least once a year, 11. Social risks 12. Terrorism risks of risk. The Company’s risk management the Audit Committee assesses the Com- 13. Country risk policy is set out in the Regulations on Risk pany’s risk management performance, 14. Regional risks Management and Internal Control System. including economic, environmental and 15. Risks related to information technologies and information security (cyber risks) social risks. Following the assessment in the reporting year, the Audit Committee recognized NOVATEK’s risk management Financial risks activities as compliant with the Company’s The Regulations on Risk respective policy. 16. Credit risk Management and Internal In the 2017 corporate year*, the Audit 17. Reinvestment risk Control System is the 18. Interest rate risk Committee held two reviews of economic, key document in the 19. Currency risk operational, environmental and other risks 20. Liquidity risk Company’s risk management 21. Inflation risk and one session related to the implemen- framework. tation of the Anti-Corruption Policy and the approval of the action plan for the next period. Legal risks On an annual basis, the Manage- In order to ensure a uniform method- ment Board discloses a list of risks and 22. Risk of law changes ology and coordinate risk management approaches to risk management in the 23. Litigation risks 24. Risk of sanctions activities, the Company has established annual report. the Risk Control Service. The risk man- The section contains a list of the Com- agement process involves the Company’s pany’s major risks, including sustainabili- top management, including the Board of ty risks.

* From the Annual General Meeting of Shareholders of 21 April 2017 to the Annual General Meeting of Shareholders of 20 April 2018. SUSTAINABILITY REPORT 2017 Corporate governance 38

Risk insurance Since 2013, the Company has in place In the reporting year, no major acci- any wrong actions (or decisions) made by Risk insurance is an effective a comprehensive program of proper- dents or incidents covered by the insur- their management bodies. The overall lim- approach to risk management. In 2017, ty and business risk insurance for its key ance occurred. it of the Company’s insurance coverage is the insurance coverage guaranteed assets. As at the end of 2017, the cumula- For twelve years in a row, NOVATEK EUR 120 mln. adequate protection against the risks of tive insured amount for the risks of prop- has been maintaining management liabil- In 2017, one of the Company’s sub- damage to the business of the Company. erty damage and business interruption ity insurance for the top management of sidiaries also insured receivables for an Insurance is provided by reputable insur- was RR 713 bln. the Company against possible third-par- approved list of natural gas consumers ance companies that have high ratings ty claims for any losses incurred through to assess the tool’s efficiency in manag- by leading rating agencies* with partial ing risks. reinsurance of risks by major international insurance and reinsurance companies. The Company fully meets the requirements of the applicable laws for maintaining obligatory insurance, such as civil liability insurance of owners of hazardous production facilities and owners of vehicles. To mitigate the risk of financial losses, the Company relies on the following types of optional insurance:

• insurance of the risk of property damage/loss, including the risk of mechanical failures; • insurance of the risk of damage from business interruption (business risks); • insurance of risks related to prospect- ing, exploration and production (risk of loss of control over a well); and • management liability and indemnity insurance.

* Standard & Poor’s, Fitch Ratings, Expert RA, A.M. Best. SUSTAINABILITY REPORT 2017

ETHICS SUSTAINABILITY REPORT 2017 Ethics 40 Ethics

ANTI-CORRUPTION POLICY 102-16 102-17 NOVATEK is committed to lawful, fair NOVATEK strictly abides by the All NOVATEK Group’s employees The person in charge of implementing 205-2 and ethical practices in all aspects of its anti-corruption laws of Russia and oth- receive ongoing training in ethical con- and overseeing the measures aimed at operations and stakeholder relations. The er countries in which it operates. With duct and zero tolerance approach to ille- preventing corruption across the Com- Company respects human rights, makes NOVATEK’s shares traded on the London gal activities. To this end, the Company pany is the Anti-Corruption Adviser, from every effort to prevent corruption, takes Stock Exchange, the Company complies has developed and put in place an inter- whom advice may be sought by any care to maintain its impeccable reputation with the requirements of the UK Bribery active online course called “Basics of the employee looking for clarifications on and seeks to implement the most strin- Act. Company’s Anti-Corruption Policy” and the Anti-Corruption Policy or other cor- gent international ethical standards. Within The Company’s Anti-Corruption Policy “Anti-Corruption Practices for Employ- ruption-related matters. To prevent cor- the Company, the Corporate Governance sets out the key principles that underpin ees”. In addition, all employees may at any ruption, the Company develops action Code, the Code of Business Conduct its efforts to counter and prevent cor- time seek advice on compliance with the plans to be undertaken to implement the and Ethics, and the Anti-Corruption Policy ruption. The document is available on Anti-Corruption Policy, ethical conduct, Anti-Corruption Policy. During the report- govern employees’ conduct and ethical the Company’s website in Russian and confidentiality, etc. ing year, anti-corruption initiatives were standards. English. All subsidiaries and joint ventures All partners of the Company are made implemented as part of the 2016–2017 Corporate Governance Code (adopted of NOVATEK have similar documents in aware of NOVATEK’s Anti-Corruption Poli- Action Plan. The results of anti-corruption in 2005) — principles and rules of corpo- place. All employees, including manage- cy and strict standards of ethical business efforts and the new 2017–2018 Action rate conduct. ment at all levels, have read the Anti-Cor- practices, and undertake to comply with Plan were discussed and approved by the Code of Business Conduct and Ethics ruption Policy and agreed to abide by its them, in line with an anti-corruption clause Audit Committee on 24 August 2017. (adopted in 2011) — business ethics stan- rules. Anti-corruption requirements and incorporated into all Company’s contracts dards for employees. limitations are included in the employ- with third parties. Anti-Corruption Policy (adopted in ment contracts and job descriptions of all The Company’s Security Hotline is one 2014) — prevention of corruption. employees. the most important anti-corruption tools that any stakeholder can use to report known cases of corruption or any other concerns. The Security Hotline is available on the Company’s and subsidiaries` The Company’s Anti-Corruption Policy sets out the key principles and joint ventures` websites, information that underpin its efforts to counter and prevent corruption. boards in the offices, production areas and living camps of its subsidiaries and joint ventures. SUSTAINABILITY REPORT 2017 Ethics 41

PREVENTION OF CONFLICTS OF INTEREST HUMAN RIGHTS 102-25 408-1 NOVATEK’s places a special emphasis Members of the Board of Directors NOVATEK respect human rights, pro- tion or limitation of labor rights and free- 409-1 on preventing conflict of interests to avoid shall: motes equal opportunities and does not doms. As a responsible employer, the potential reputational damage to its busi- • promptly give the Chairman of the tolerate discrimination by ethnic group, Company complies with all legal require- ness, its trade mark and its good standing Board a written notification of personal gender, origin, age, religion or on any other ments and adheres to best global prac- in the domestic and international business or commercial interests in all transac- ground. tices. The Company does not use child or community. The perception of “conflict of tions, including those involving the The Company’s approach to human forced labor. All HR decisions are based interests” also increases risk to sharehold- Company’s securities; rights is reflected in its key corporate doc- on qualifications and professional quali- ers. . For effective conflict of interest risk • duly disclose their jobs with other uments (Code of Business Conduct and ties of an employee. management, certain employees in key companies and third-party business Ethics, Anti-Corruption Policy, Health, Safe- NOVATEK recognizes the right of its decision making capacities are required interests that might prevent such ty and Environment (HSE) Policy, Collective employees, and encourages them to cre- to disclose conflicts of interest (or no con- members from effective discharge of Bargaining Agreement). ate associations and employee protection flicts of interest) by filling in respective their duties and responsibilities. organizations. Forty-eight percent of the declarations. The Company shares the universal prin- Company’s employees are trade union The Company’s managers and Members of the Management Board ciples enshrined in: members. employees are expected to advocate the shall: • UN Global Compact; The Company recognizes its responsi- supremacy of corporate interests first and • notify the Management Board of • Universal Declaration of Human Rights; bility towards local communities, includ- foremost, separating their personal inter- personal interests in transactions to • International Labor Organization’s ing indigenous peoples, and guarantees ests from decision-making. which the Company is or intends to be Declaration on Fundamental Principles that their rights will be respected when- Should their personal and corpo- a party, before such transactions are and Rights at Work; ever production operations are launched rate interests become incompatible, decided upon; • Social Charter of Russian Business. where they live. NOVATEK’s managers and employees • set up or manage no business entities The Company implements these princi- NOVATEK also supports human rights are obliged to report on that conflict competing with NOVATEK, except as ples by: initiatives and pursues a policy aiming to immediately. They are also expected to allowed by the Board of Directors. • committing to human rights and build strong relationships with local com- refrain from any forms of competition with integrating them into internal regulations; munities across its operational footprint. the Company in business and investment • engaging stakeholders in a dialogue on The Company implements education- projects. The Company’s employees are human rights matters; al, cultural, sports and social projects for not allowed to pursue any property or • ensuring that its employees and partners the benefit of local communities and its financial interests in competitor business- respect human rights. personnel. es. They are advised to refrain from con- • developing feedback channels that The Company facilitates the devel- ducting related-party transactions. The enable stakeholders to express their opment of long-term sustainable rela- Company also seeks to avoid conflicts of opinions or grievances on related tions with its business partners. NOVATEK interest caused by giving/receiving gifts, matters (specifically, Security Hotline). takes reasonable care to select partners services or any other benefits. and strives to do business only with reli- NOVATEK conducts its Russian opera- able market players who operate in a tions in full compliance with the Labor Code lawful manner and prohibit discrimina- of the Russian Federation and Russian tion, corruption and the abasement of laws in general, prohibiting any discrimina- human dignity. SUSTAINABILITY REPORT 2017

COMPANY’S RESULTS SUSTAINABILITY REPORT 2017 Company’s results 43 Company’s results

ENSURING STRONG ECONOMIC PERFORMANCE OG1 In the reporting year, NOVATEK’s oper- In 2017, revenue grew by 8.5%, while a reserves-to-production ratio of 29 years ating and economic performance reflect- normalized EBITDA increased 5.8% and (up from 24 years in 2016). ed its well-balanced and reasonable normalized profit*** decreased by 21.9%. Moreover, it managed to build a solid management approach based on rigorous NOVATEK has steadily expanded its basis for future growth, setting the stage cost control and a conservative financial resource base through geological explo- for its leadership in the global LNG market. policy. The Company maintains its lifting ration and license acquisitions. In 2017, A landmark event was the commission- costs at one of the lowest levels in the oil total proved reserves increased by 12.8% ing of the first LNG train at Yamal LNG and and gas industry globally, which has been compared to 2016, while the Company the first tanker shipment dispatch from the one of its key competitive advantage. achieved a replacement ratio of 435% and project in December 2017.

Key results in 2014–2017

Unit 2014 2015 2016 2017 Change 2016-2017, % NOVATEK has steadily expanded its resource Total revenues RR mln 357,643 475,325 537,472 583,186 8.5% base through geological exploration and license Normalized EBITDA (including share in EBITDA of joint RR mln 159,631 214,466 242,407 256,464 5.8% acquisitions. ventures)**

Normalized profit*** RR mln 35,197 73,407 200,118 156,387 (21.9%)

Dividends paid RR bln 31.3 41.0 42.2 45.4 7.6%

Oil and gas revenues RR mln 355,637 472,007 533,857 579,819 8.6%

Headcount**** People 9,248 10,408 11,536 12,236 6.1%

Proved hydrocarbon reserves (SEC) mmboe 12,643 12,817 13,402* 15,120* 12.8%

* Hydrocarbon reserves are based on a 100% share in subsidiaries’ results and our share in joint ventures’ results, including gas used for own purposes. Reserves and production of the South-Tambeyskoye field are reported at 60%. ** Adjusted for disposal of stakes in joint ventures. *** Excluding the effect from the disposal of interests in joint ventures. **** Employees for whom NOVATEK, its subsidiaries or joint ventures were primary employers. It does not cover the employees working at LLC Severneft-Urengoy, JSC Yuzhno-Khadyryakhinskoye and JSC Eurotek. SUSTAINABILITY REPORT 2017 Company’s results 44

Key events and achievements in 2017 201-1 • Yamal LNG’s first train was put into operation, with the Christophe de Margerie, the • The Company also entered into a cooperation agreement with the Kamchatka inaugural Arc7 ice-class tanker, taking the first LNG shipment. Territory’s Government to construct a sea terminal facility for reloading LNG.

• A newly developed long-term corporate strategy for the period 2018 until 2030 was • Its other deals included memorandum of understanding (MOU) with China Development presented at the Corporate Strategy Day. Bank, a strategic cooperation agreement with CNPC, a trilateral MoU with Marubeni Corporation and Mitsui O.S.K. Lines and a Vietnam-focused MoU with Total and Siemens. • NOVATEK was awarded licenses for the Gydanskoye, Verkhnetiuteyskoye, West- Seyakhinskoye and Shtormovoye fields (Yamal and Gydan peninsulas) and acquired • NOVATEK joined the Society for Gas as a Marine Fuel (SGMF) and SEA\LNG Association. the South-Khadyryakhinskoye and Syskonsynyinskoye fields along with the West- Yaroyakhinskiy license area. • NOVATEK was included in the FTSE4Good Emerging Index by FTSE Russel, and the Vigeo Eiris Best Emerging Market Performers ranking (100 best EM companies). • Strategic partnership agreements were signed with TechnipFMC, Linde AG, Research and Design Institute for Gas Processing, Atomenergomash and United Shipbuilding • The Company’s Greenhouse Gas Emissions Control System was granted National Corporation. Environmental Award named after Vladimir Vernadskiy in the nomination “Science for Ecology”. • Memorandums of understandings were signed with the Ministry of Industry and Trade and the Murmansk Region’s Government to establish a domestic center for the construction of large-scale offshore structures.

Direct economic value generated and distributed in 2014–2017, RR mln*

2014 2015 2016 2017

Generated economic value

Revenues 362,706 487,947 556,204 599,058

Distributed economic value

Operating expenditures 236,512 335,042 385,499 419,859

Salaries and other payments and benefits to employees 12,009 15,368 19,885 20,097

Payments to suppliers of financial resources 38,278 50,189 57,950 52,310

Taxes payable to the budgets of relevant countries 45,587 59,410 79,630 84,721

Social investments 727 1,000 1,871 2,813

Retained economic value 88,608 99,712 111,987 126,237

* Data are based on the following methodology: revenues – total revenues plus interest income; operating expenditures – operating expenses less depreciation and depreciation less impairment of assets less salaries and other payments and benefits to employees less taxes other than income tax, less social investments;payments to suppliers of financial resources – dividends paid plus interest paid; taxes payable to the budgets of relevant countries – current income tax plus taxes other than income tax. SUSTAINABILITY REPORT 2017 Company’s results 45

BUSINESS MODEL*

Yamal LNG Producing fields Separation and treatment In December 2017, our joint venture Yamal LNG launched the first LNG train.

LNG (tankers) Natural gas by Crude oil by Unstable gas pipeline pipeline condensate by pipeline

Purovsky Plant Ust-Luga Complex (nameplate capacity – 11 mmtpa) (nameplate capacity – 6 mmtpa) Stabilization of gas Fractionation of stable gas condensate condensate

11.4 mln tons 79% 7.0 mln tons 78% Stable gas 22% 21% condensate 62% Naphtha by rail 16% Jet fuel 14% Fuel oil 8% Gasoil LPG**

100% 100% 67% / 33% 80% / 20% 82% / 18% ~ 100% to international to domestic market to domestic/ to domestic/ to domestic/ to international market by sea international market international market international market market by sea

0.1 bcm 64.9 bcm 4.6 mln tons 2.6 mln tons 1.9 mln tons 6.7 mln tons

* The data are presented for 2017, reflected the NOVATEK volume of sales. ** Including light hydrocarbon products. SUSTAINABILITY REPORT 2017 Company’s results 46

PRODUCTION 102-2 Licenses Hydrocarbon reserves Reserves were increased by explora- As at 31 December 2017, proved and In 2017, NOVATEK significantly expand- As at 31 December 2017, NOVATEK’s tion activities conducted at the Utrenneye, probable hydrocarbon reserves (PRMS), ed its license portfolio by strategically proved reserves (SEC), including the Kharbeyskoye, West-Yurkharovskoye and including the Company’s proportionate acquiring companies and winning State Company’s proportionate share in joint Urengoyskoye (Samburgskiy license area) share in joint ventures, totalled 28,471 sponsored mineral license auctions. As ventures, totalled 15,120 mmboe, includ- fields, as well as production drilling at the mmboe, including 3,879 bcm of natural at 31 December 2017, its subsidiaries and ing 2,098 bcm of natural gas and 164 mmt South-Tambeyskoye field, newly obtained gas and 366 mmt of liquid hydrocarbons, joint ventures held a total of 45 subsoil of liquid hydrocarbons. The Company’s licenses, and acquisitions. Thanks to suc- while the corresponding reserves-to-pro- licenses in Russia (compared to 39 licens- proved reserves grew by 12.8%, while cessful exploration works and drilling duction ratio stood at 55 years. es in 2016). the reserve replacement ratio stood at progress, proved hydrocarbon reserves Thanks to the high-quality hydrocar- The Company has built an enviable 435%. At the end of 2017, the Company’s added 1.3% across existing licenses, with bon resource base, NOVATEK has been resource and acreage base in strategical- reserves-to-production ratio was 29 years. the corresponding organic replacement maintaining its exploration and lifting ly important regions. ratio at 134%. costs at one of the lowest levels among global public companies. In 2017 and the five-year period of 2013–2017, its proved reserve replacement expenses aver- aged RR 25 (USD 0.4) per boe and RR 94 (USD 2.3) per boe, respectively.

Total proved and probable hydrocarbon reserves in 2014–2017, mmboe*

2014 2015 2016 2017

Proved (SEC) 12,643 12,817 13,402 15,120 45 subsoil licenses • Proved and probable (PRMS) 23,069 23,117 23,769 28,471 • 15,120 mmboe of proved reserves • 435% reserve replacement ratio • 29 years reserves-to- production ratio

* Hydrocarbon reserves were adjusted to account for a 100% share in subsidiaries’ results and our share in joint ventures’ results (in 2016–2017 including fuel gas). Figures for the South-Tambeyskoye field in 2016 and 2017 were adjusted to account for the Company’s 60% stake in Yamal LNG. SUSTAINABILITY REPORT 2017 Company’s results 47

HYDROCARBON RESOURCE BASE Production Prospective fields and license areas Yamal-Nenets Autonomous Region 1. Yurkharovskoye field 15. West-Yurkharovskoye field 2. East-Tarkosalinskoye field 16. Raduzhnoye field 3. Khancheyskoye field 17. West-Urengoiskiy license area 4. Olimpiyskiy license area 18. North-Yubileynoye field 5. Yumantilskiy license area 19. North-Russkiy license area 6. Samburgskiy license area 20. North-Russkoye field 7. North-Urengoyskoye field 21. Dorogovskoye field 8. North-Khancheyskoye field 22. Ukrainsko-Yubileynoye field 9. Yaro-Yakhinskiy license area 23. Malo-Yamalskoye field 29 10. Termokarstovoye field 24. West-Chaselskoye field 31 11. Yarudeyskoye field 25. Yevo-Yakhinskoye field 12. South-Tambeyskoye field* 26. North-Chaselskiy license area 39 43 13. West-Yaroyakhinskiy 27. Utrenneye field** 12 license area 28. Geofizicheskoe field 30 27 14. Syskonsynyinskiy license 29. North-Obskiy license area 40 35 area (located in the Khanty- 30. East-Tambeyskiy license area 44 42 36 37 Mansiysk Autonomous Region) 31. North-Tasiyskiy license area Yamal 32. East-Tazovskoye field Peninsula 38 33. Trekhbugorniy license area 28 Gydan 34. Nyakhartinskiy license area 33 Peninsula 35. Ladertoyskiy license area Yamal LNG 36. Nyavuyahskiy license area 37. West-Solpatinskiy license area Purovsky Gas Condensate 34 Processing Plant 38. North-Tanamskiy license area 39. Syadorskiy license area 23 Gas condensate pipelines of 40. Tanamskiy subsoil area 15 1 NOVATEK 41. Kharbeyskiy license area 7 32 19 42. Gydanskiy license area 21 20 43. Shtormovoy license area 41 44. Verhnetiuteyskiy + West‑Seyakhinskiy LA 6 16 18 45. South-Khadyryakhinskiy 11 13 9 26 license area 17 25 22 24 10 4 8 5 2 45 3 * Yamal LNG Project ** Arctic LNG 2 Project SUSTAINABILITY REPORT 2017 Company’s results 48

Exploration In 2017, the Company continued explo- Field development • upgraded a gas treatment facility and The Company’s consistent and com- ration works on the Yamal and Gydan In 2017, NOVATEK continued to devel- commissioned a 3S (supersonic) gas prehensive approach to hydrocarbon peninsulas, seeking to significantly op its producing and prospective fields, separation facility at the Yarudeyskoye development embraces everything from increase its resource base for future LNG investing a total of RR 12.1 bln in resource field; collecting and interpreting seismic and projects. base development. • started preparations at the North- well data employed to work out best In 2017, we completed the running and Production drilling, including those Russkoye field (backfilling well pads, production solutions through geological processing of 1,465 square kilometers of drilled at joint ventures, increased by roads and infrastructure sites); and hydrodynamic modelling to adopt- 3D seismic works and drilled 25 thousand 12% to 262,000 meters, with Arcticgas’s • started preparations to build a center ing advanced drilling and well comple- meters of exploration drilling. Yaro-Yakhinskoye field as the key driver. for the construction of large-scale tion techniques. Innovative technology Successful exploration works helped A total of 68 wells were commissioned, offshore structures in Belokamenka, and highly qualified geological person- the Company increase its resource base including 55 gas and gas condensate Murmansk Region, including drilling, nel enable NOVATEK to ensure sustain- by 604 bcm of natural gas, 38 mmt of wells and 13 oil wells. blasting and earthworks (completing a ability while delivering strong economic gas condensate and 23 mmt of crude oil In the reporting year, the Company did site plan, creating artificial land plots, performance. under the Russian reserve reporting stan- the following infrastructure-related works building dry docks and berths). dards, or 344 bcm of natural gas, 24 mmt at its producing fields: of gas condensate and 23 mmt of crude • commissioned two 48 MW booster oil under the international PRMS stan- compressor stations at the North- dards. In the reporting year, 26 hydrocar- Urengoyskoye and Samburgskoye bon deposits were discovered. fields; SUSTAINABILITY REPORT 2017 Company’s results 49

HYDROCARBON PRODUCTION 102-2 In 2017, NOVATEK produced commer- for 4,882 thousand tons. Liquid hydro- Yamal LNG shareholders as at cial hydrocarbons at 16 fields. The Com- carbons production share in NOVATEK’s 31 December 2017 South-Tambeyskoye field pany’s production (including attributable aggregate production remained approx- share in the production of JVs) amounted imately at the level of the previous year to 513.3 mmboe, down 6.2% versus 2016. and amounted to 19.2%. The production volumes at mature fields In 2017, our lifting costs amounted to Location: of our subsidiaries and joint ventures RR 44.3 (USD 0.76) per boe, one of the Yamal Peninsula (north-east) Discovered in 1974 decreased mainly due to natural declines lowest levels in the global oil and gas in the reservoir pressure at the current industry.

gas producing horizons. The decrease Proved reserves (SEC) as at was partially offset by the improved effi- Yamal LNG project 31 December 2017 ciency of associated petroleum gas utili- In December 2017, Yamal LNG’s Train 1 Natural gas – 683 bcm Liquid hydrocarbons – 21 mmt zation at our Yarudeyskoye field, as well with a nameplate capacity of 5.5 mln tons as the commencement of LNG production of LNG per annum commenced LNG pro- at the first LNG train at Yamal LNG in the duction. The first LNG cargo was loaded Proved and probable reserves (PRMS) as fourth quarter of 2017. onto the LNG carrier “Christophe de Mar- at 31 December 2017 Total natural gas production includ- gerie”, the world’s first Arc7 ice-class LNG Natural gas – 992 bcm ing the Company’s share in production carrier, on 8 December 2017 in the port of Liquid hydrocarbons – 32 mmt of joint ventures aggregated 63.40 bcm, Sabetta. representing approximately 81% of our The commencement of LNG pro- total hydrocarbon output. The share of duction was a landmark event for both gas produced from the gas condensate Yamal LNG and the Company, paving the In 2017, Yamal LNG shareholders 50.1% NOVATEK bearing layers (or “wet gas”) in proportion way for the former to produce the first approved the construction plan to build a 20% Total to total gas production was 77%. Produc- quantities of LNG from Russia’s Arctic fourth LNG train with a nameplate capac- tion of natural gas decreased by 6.3% as region and the latter to enter the global ity of 0.9 mtpa based on NOVATEK’s 20 % CNPC compared to 2016 volumes. gas market. proprietary “Arctic Cascade” liquefaction 9.9% Silk Road Fund Production of liquid hydrocarbons Yamal LNG’s resource base is the technology. This allows the Project spon- including the Company’s share in pro- South-Tambeyskoye field, which con- sors to add additional LNG production duction of joint ventures totaled 11,774 sists of 42 gas-bearing layers at depths with a low capex per unit of production thousand tons, of which 59% was gas between 900 meters and 3,730 meters with no need to build additional infrastruc- condensate and the remaining 41% con- and has three domes. The field is being ture which will reduce LNG production sisted of crude oil. Production of liquid developed using horizontal wells with costs for the entire project. The LNG plant hydrocarbons decreased by 5.4% as drilled lengths of up to 5,000 meters and will have a total capacity of 17.4 mtpa, with compared to 2016, with gas condensate horizontal sections of up to 1,500 meters. each of the first three LNG trains capable production amounting to 6,892 thousand Yamal LNG has the license to explore of producing 5.5 mtpa and the fourth LNG tons and crude oil production accounting and develop it resource based until 2045. train at 0.9 mtpa. SUSTAINABILITY REPORT 2017 Company’s results 50

GAS CONDENSATE PROCESSING 102-2 As at the year-end, the Yamal LNG At year-end 2017, all 142 modules for Purovsky Plant The Purovsky Plant is connected via project was approximately 91% complete. the LNG plant three trains had been deliv- Our subsidiaries and joint ventures are its own railway line to the Russian rail The infrastructure includes a sea port, an ered to the site by sea, 137 of them had producing “wet gas”, a mixture consisting network at the Limbey rail station. Sub- international airport, roads, power lines, been installed on the prepared founda- of natural gas and gas condensate. After sequent to the launch of the Ust-Lu- internal distribution pipelines and a work- tions, and commissioning of the equip- being separated and de-ethanized at the ga Complex in 2013, most of the stable ers’ rotation camp. The export shipping ment for the second train and third train field the unstable (de-ethanized) gas con- gas condensate volumes produced at infrastructure includes an LNG jetty with hook up were underway. All of the main densate is delivered via a system of con- the Purovsky Plant is delivered by rail to two terminals at the Sabetta sea port. LNG equipment, including three main densate pipelines owned and operated Ust-Luga for further processing or trans- The field development plan provides cryogenic heat exchangers (the core of by the Company for further stabilization at shipment to exports, with the remaining for drilling 208 wells at 19 well drilling the natural gas liquefaction technology) our Purovsky Plant located in the YNAO volume of stable gas condensate sold pads, with the design capacity exceeding for all three trains of the LNG plant, com- in close proximity to the East-Tarkosa- directly from the plant to the domestic 27 bcm of natural gas per annum. As at pressor equipment, packages of steel linskoye field. market. the year-end, 103 production wells were structures and pipe racks, and power The Purovsky Plant, with a nameplate All light hydrocarbons – feedstock drilled at the South-Tambeyskoye field, plant turbines are on site. capacity of 11 mtpa, is the central element for marketable LPG – are transported by surpassing the mark of 93 wells required More than 95% of the LNG volumes in our vertically integrated value chain that pipeline to SIBUR’s Tobolsk Petrochemical to launch the first two LNG trains. produced from the three LNG trains has provides us complete operational control Complex for further processing. Approximately 26,000 people were been contracted on a long-term basis. over our processing needs and access employed at the site as at the end of A total of three LNG cargoes were off- to higher yielding marketing channels for Ust-Luga Complex 2017. The Sabetta International Airport loaded over the course of December our stable gas condensate. The Purovsky The six million ton per annum Gas operates regular domestic flights from 2017. Specially designed Arc7 ice-class Plant processes unstable gas condensate Condensate Fractionation and Transship- Novy Urengoy, Ufa, Moscow and Sama- LNG carriers are used for LNG transpor- into stable gas condensate and natural ment Complex (the “Ust-Luga Complex”) ra, maximizing effectiveness of shifts. In tation. As of the end of 2017, four Arc7 gas liquids (NGL). launched in 2013 is located at the all-sea- 2017, scheduled passenger traffic totalled LNG carriers were put into operation In the reporting period, the Purovsky son port of Ust-Luga on the Baltic Sea. around 364,000 passengers. while eleven (11) LNG carriers were under Plant processed its milestone volume – The Ust-Luga Complex processes sta- construction. 65 million tons of gas condensate since ble gas condensate into light and heavy the start of operation in 2005. naphtha, jet fuel, ship fuel component (fuel The Purovsky Plant processed 11,445 oil) and gasoil, and enables us to ship the mt of de-ethanized gas condensate, rep- value-added petroleum products to inter- resenting a 7.7% decrease compared to national markets. The Ust-Luga Complex 2016. The Purovsky Plant’s processing also allows for transshipment of stable The LNG plant will have a total capacity of 17.4 mtpa, with each capacity is in line with the total production gas condensate to the export markets. of the first three LNG trains capable of producing 5.5 mtpa capacity with our fields and those fields of In 2017, it processed its milestone and the fourth LNG train at 0.9 mtpa. our joint ventures. The output mix includ- volume – 25 million tons of stable gas ed 8,853 mt of stable gas condensate, condensate since the start of operation and 2,493 mt of NGL and LPG. in 2013. SUSTAINABILITY REPORT 2017 Company’s results 51

102-7 NOVATEK Group’s key operating indicators in 2014–2017 In the reporting year, the Ust-Luga Complex processed 6,961 mt of stable Unit 2014 2015 2016 2017 Change gas condensate into 6,826 mt of end in 2017 vs products, including 4,223 mt of light and 2016 heavy naphtha, 1,072 mt of jet fuel and Hydrocarbon production (including stakes in joint ventures) 1,531 mt of ship fuel component (fuel oil) and gasoil. In 2017, its light products yield Total production* mmboe 456.7 521.6 547.0 513.3 (6.2%) stood at 84.5%. Including

Natural gas* mmcm 62,129 67,905 67,647 63,399 (6.3%)

mmboe 406.3 444.1 442.4 414.6

Liquid hydrocarbons mt 6,036 9,094 12,441 11,774 (5.4%) High value-added petroleum mmboe 50.4 77.5 104.6 98.7 products produced at the Ust-Luga Complex have a Processing volumes and output of the Purovsky Plant

significant positive impact De-ethanized condensate processing mt 6,600 12,021 12,397 11,445 (7.7%) on the profitability of our liquid hydrocarbon sales and Output: the Company’s cash flow Stable gas condensate mt 5,049 9,664 9,667 8,853 (8.4%) generation. Light hydrocarbons and LPG mt 1,371 2,228 2,597 2,493 (4.0%)

Processing volumes and output of the Ust-Luga Complex

Stable condensate processing mt 4,706 6,727 6,917 6,961 0.6%

The excess volumes of stable gas con- Output: densate received from the processing at heavy naphtha mt 2,006 2,101 2,195 2,261 3.0% the Purovsky Plant over volumes sent for light naphtha mt 1,425 1,898 2,000 1,962 (1.9%) further processing to the Ust-Luga Com- plex are sold on both the domestic and jet fuel mt 472 949 998 1,072 7.4% international markets. gasoil mt 179 462 443 564 27.3%

ship fuel component (fuel oil) mt 542 1,183 1,147 967 (15.7%)

* Figures for natural gas production in 2016–2017 include the volumes consumed internally in production and development (primarily as fuel gas). SUSTAINABILITY REPORT 2017 Company’s results 52

MARKETING AND SALES 102-6 Norway Sweden Finland Russia China Japan 102-7 UK Netherlands Latvia

Estonia Norway Sweden Finland Russia China Japan

Denmark UK Netherlands Latvia

Poland RUSSIA Estonia Norway Sweden Finland Russia China Japan Germany UK Netherlands Latvia Denmark Belgium Poland Norway Sweden Finland Russia China Japan RUSSIA

Romania Estonia UK Netherlands Latvia Germany Italy Denmark Norway Sweden Finland Russia China Japan Belgium Poland UK Netherlands Latvia Spain Estonia Romania RUSSIA

Germany Greece Denmark Italy Belgium Estonia Poland Spain RUSSIA

Romania Denmark 6,743 2,648 4,616 1,918 Germany Greece Italy Poland 2% Belgium RUSSIA

18% 6,743 2,648Spain 4,616 1,918 Germany 20% 33% Romania 98% 80% 67% 2% Greece Belgium 82% Italy 20% 18% 33% Romania Spain 98% 80% 67% 6,743 2,648 4,616 1,918 82% Italy Norway Sweden Finland Russia China Japan Greece Ust-Luga products LPG and light Crude oil Stable gas 2% USA Thailand Malaysia Singapore Taiwan South Korea hydrocarbons condensate UK Netherlands Latvia Spain 20% 18% Ust-Luga products 33%LPG and light Crude oil Stable gas USA Thailand Malaysia Singapore Taiwan South Korea 6,743 2,648 98%4,616 80%1,918 67% Greece hydrocarbons 82% condensate 60% 17% 23% 2% Estonia Domestic market Exports of LPG and light hydrocarbons Exports of Ust-Luga products: 18% 20% 33% 60% 17% 23% Export markets 6,743 Exports of cr2,648ude oil 4,616 Jet fue1,l 918 98% 80% 67% Domestic market Exports of LPG and light hydrocarbons Exports of Ust-Luga products: Ust-Luga products LPG and light CrudeDenmark oil StableUst-Lug gasa Complex Exports of stable gas condensate Diesel and fuel oil USA Thailand Malaysia Singapore Taiwan South Korea Naphtha Jet fuel Diesel and fuel oil 82% Export markets Exports of crude oil Jet fuel hydrocarbons condensate 2% Purovsky Plant Naphtha Ust-Luga Complex Exports of stable gas condensate Diesel and fuel oil Naphtha Jet fuel DieselP olandand fuel oil 18% 20% 33% Purovsky Plant RUSSIA Naphtha 98% 80% 67% Ust-Luga products LPG and light 60% Crude oil 17% 23% Stable gas Germany USA Thailand 82% Malaysia Singapore Taiwan South Korea Domestic market Exports of LPG and light hydrocarbons Exports of Ust-Luga products: hydrocarbons condensate Export markets Exports of crude oil Jet fuel Belgium Naphtha Jet fuel Diesel and fuel oil Ust-Luga Complex Exports of stable gas condensate Diesel and fuel oil Ust-Luga products LPG and light Crude oil PurovskyStable gas Plant Naphtha USA Thailand Malaysia Singapore Taiwan South Korea 60% 17% 23% Romania Domestichydrocarbons market Exports of LPG condensateand light hydrocarbons Exports of Ust-Luga products: Export markets Exports of crude oil Jet fuel Italy Naphtha Jet fuel Diesel and fuel oil Ust-Luga Complex Exports of stable gas condensate Diesel and fuel oil 60% 17% 23% Purovsky Plant Naphtha Spain Domestic market Exports of LPG and light hydrocarbons Exports of Ust-Luga products: Export markets Exports of crude oil Jet fuel Greece Naphtha Jet fuel Diesel and fuel oil Ust-Luga Complex Exports of stable gas condensate Diesel and fuel oil Purovsky Plant Naphtha

6,743 2,648 4,616 1,918

18% 20% 33% 98% 80% 67% 82%

Ust-Luga products LPG and light Crude oil Stable gas USA Thailand Malaysia Singapore Taiwan South Korea hydrocarbons condensate

60% 17% 23% Domestic market Exports of LPG and light hydrocarbons Exports of Ust-Luga products: Export markets Exports of crude oil Jet fuel Naphtha Jet fuel Diesel and fuel oil Ust-Luga Complex Exports of stable gas condensate Diesel and fuel oil Purovsky Plant Naphtha SUSTAINABILITY REPORT 2017 Company’s results 53

102-6 102-7 Natural gas sales ing a 7.8% increase compared to 2016. NOVATEK sells natural gas within the The revenue increase was mainly driven Russian Federation as well as exports by growth in sales to end customers in natural gas in the form of LNG. The Com- Russia, the increase of Russian domestic pany started exporting LNG in Decem- regulated prices, as well as start of LNG ber 2017 when the first train at Yamal LNG deliveries. started production. Relatively small natu- In order to manage seasonal gas ral gas volumes are also sold through the demand, NOVATEK has entered into an Blue Gaz LNG regas station acquired in agreement with Gazprom for underground Kostroma Moscow Smolensk Vologda Perm region region, region region territory December 2016. storage services. Natural gas inventories Moscow NOVATEK plays an integral role in are accumulated during warmer periods ensuring supplies of natural gas to the when demand is lower and then used domestic market. During 2017, the Com- to meet increased demand during peri- pany supplied natural gas to 39 regions ods of colder weather. At year-end 2017, of the Russian Federation. Our end users our inventories of natural gas in under- and traders were located primarily in the ground gas storage facilities and pipelines following regions: Chelyabinsk, the Khan- amounted to approximately 0.87 bcm. ty-Mansiysk Autonomous Region, Moscow region and the city of Moscow, Lipezk, Liquid hydrocarbon sales YNAO, Tyumen, Vologda, Stavropol, Smo- NOVATEK sells liquid hydrocarbons lensk, Nizhny Novgorod and Kostroma (stable gas condensate, petroleum prod- regions, Perm territory and the Republic of ucts, light hydrocarbons, LPG and crude Tatarstan. The above regions accounted oil) domestically and internationally. The for more than 94% of our total gas sales. Company strives to respond quickly to The total volume of natural gas sales changing market conditions by optimizing in 2017, including LNG, aggregated 65.0 the customer base and supply geography, bcm, increasing by 0.5% compared to the as well as developing and maintaining previous year due to a minor increase in logistics infrastructure. sales volume within the Russian Federa- The logistical supply chain varies tion as well as the commencement of LNG according to location and type of prod- export sales. The proportional share of uct – stable gas condensate and LPG are natural gas sales to the domestic end cus- transported by rail, finished petroleum tomers increased compared to 2016 and products produced at the Ust-Luga Com- accounted for 94.9% of our total natural plex are exported by sea, while crude oil Nizhny Stavropol Lipezk Republic of Chelyabinsk Tyumen Khanty- Yamal- Novgorod region region Tatarstan region region Mansiysk Nenets gas sales mix. produced from our fields is transported region autonomous autonomous region region Revenues from natural gas sales in through the trunk pipelines owned and 2017 totaled RR 248 billion, represent- operated by Transneft. Main regions of gas sales Other regions of gas sales SUSTAINABILITY REPORT 2017 Company’s results 54

In 2017, the liquids sales volume Petroleum products from the Ust-Lu- exported to Asia Pacific, light naphtha – A portion of light hydrocarbons pro- reached 15,939 mt, or 5.4% less than in ga Complex accounted for a 42% share to Northwest Europe and North America, duced at the Purovsky Plant is processed 2016. In 2017, export sales decreased by of our overall liquids sales volumes. We and jet fuel, diesel fraction and heavy fuel on tolling terms at SIBUR’s Tobolsk Petro- 8.5% as compared to 2016 and amounted sold a total of 6,743 mt of petroleum prod- – to Northwest Europe. chemical Complex into marketable LPG, to 9,027 mt. ucts, including 4,102 mt of naphtha, 1,121 Export and domestic sales of stable which is then delivered to NOVATEK’s In 2017, our liquids sales revenues mt of jet fuel and 1,520 mt of fuel oil and gas condensate continued in 2017 as customer base, while the rest of the light increased to RR 332 billion, or by 9.2% as gasoil. The majority of petroleum prod- we reached full capacity utilization at the hydrocarbons volumes are sold to SIBUR. compared to 2016, mainly driven by high- ucts (98%) were exported. Export volumes Ust-Luga Complex. Total stable gas con- We sold 1,288 mt of light hydrocarbons er global oil prices and underlying bench- were distributed as follows: Europe – densate sales volumes amounted to 1,918 in 2017. mark prices. 58%, Asia-Pacific – 29%, and North Amer- mt, representing a 32% decrease com- ica – 13%. Most of our heavy naphtha was pared to 2016.

NOVATEK Group’s natural gas and liquid hydrocarbon sales in 2014–2017

Unit 2014 2015 2016 2017 Change in 2017 vs 2016 Natural gas sales

Total natural gas sales mmcm 67,231 62,465 64,709 65,004 0.5%

To end customers mmcm 63,281 58,054 59,646 61,560 3.2%

To traders mmcm 3,950 4,411 5,063 3,338 (34.1%)

Share of end customers in domestic sales % 94.1 92.9 92.2 94.9 2.7 p.p.

Liquid hydrocarbon sales

Total liquid hydrocarbon sales mt 7,089 12,888 16,850 15,939 (5.4%)

Including

Ust-Luga products mt 4,438 6,693 6,662 6,743 1.2%

Crude oil mt 903 1,090 4,650 4,616 (0.7%)

Stable gas condensate mt 303 2,786 2,812 1,918 (31.8%)

Light hydrocarbons mt 504 1,026 1,468 1,288 (12.3%)

LPG mt 930 1,280 1,245 1,360 9.2%

Other mt 11 13 13 14 7.7% SUSTAINABILITY REPORT 2017 Company’s results 55

DIVIDENDS Marketable LPG sales volumes totaled The Dividend Policy is focused on 1,360 mt in 2017, representing a 9.2% maintaining a balance between the Com- The Company’s Dividend Policy is regulated by the Regulation increase compared to 2016. LPG export pany’s and its shareholders’ interests. on Dividend Policy of NOVATEK. Amounts to be paid are based sales volumes amounted to 536 mt or Recommendations on the amounts and on IFRS consolidated net profit. 39% of the total LPG sales volumes. payment schedule made by the Board Novatek Polska, our wholly owned LPG of Directors to the General Meeting of trading company in Poland, sold 509 mt Shareholders are based on NOVATEK’s of LPG, representing 95% of our total LPG current financial and operational position export sales. Apart from Poland, LPG was and its development outlook, including ing of Shareholders resolves on dividend nary share or RR 149.5 per Global Depos- also exported to Finland. expected operating cash flow and capital payments. itary Receipt (GDR) (including interim In the domestic market, our LPG is expenditure, debt capital requirements, The Annual General Meeting of Share- dividends of RR 6.95 per ordinary share sold through large wholesale channels etc. Taking into account the Dividend Pol- holders of NOVATEK held on 20 April for 1H 2017). as well as through our network of retail icy and the recommendations made by 2018 resolved to pay dividends for FY and small wholesale stations. In 2017, the Board of Directors, the General Meet- 2017 in the amount of RR 14.95 per ordi- large wholesale supplies to the domestic market stood at 679 mt, representing 82% of domestic LPG sales. We also sold Declared and paid dividends for 2013–2017 LPG via our network of 66 retail stations and seven small wholesale stations in Dividend period Dividends, RR per share Total dividends declared, RR Total dividends paid, RR the Chelyabinsk, Volgograd, Rostov and Astrakhan Regions. The combined sales 2013 7.89 23,956,454,340 23,956,386,795 from our retail and wholesale stations totaled 146 mt. 2014 10.30 31,273,951,800 31,273,942,156 Sales of crude oil in 2017 totaled 4,616 mt, which is 0.7% below the similar indica- 2015 13.50 40,990,131,000 40,990,062,712 tor from 2016. We sold 67% of our crude oil volumes in the domestic market with 2016 13.90 42,204,653,400 42,204,582,185 the remaining volumes exported. 2017 14.95 45,392,774,700 45,392,732,141 SUSTAINABILITY REPORT 2017

EXTERNAL SOCIAL POLICY SUSTAINABILITY REPORT 2017 External social policy 57 External social policy

COOPERATION WITH RUSSIAN REGIONS 203-1 Yamal-Nenets Autonomous NOVATEK fully comprehends its role In 2017, investments in developing One of NOVATEK’s strategic goals is Region development in being a socially responsible corpora- regions, social and charitable projects, and to promote social and economic sustain- tion, and supports local communities and sponsorship, totalled RR 2.8 bln, up 47% ability and develop regions of operations The Yamal-Nenets Autonomous regions where our operations are located. YoY. More than a half of social investments through social investments and vari- Region is an important region of operation The Company sponsorship is comprehen- (53%) were made to develop regions and ous charitable programs. To this end, the for NOVATEK, as it is home to the Compa- sive and includes projects and programs support indigenous peoples of the North. Company plans and conducts all activ- ny’s core production operation. The Com- embracing culture, sports, education and ities with an eye to its local community pany makes most of its social investments social work, especially helping those indi- commitments. in this region: NOVATEK provides sub- viduals in need. On an annual basis, the Company stantial regional assistance by contribut- enters into cooperation agreements with ing to the development and improvement its regions of operation, makes a consid- of settlements, and to the construction erable contribution to the economic and and repairs of housing, educational and Social investments in 2017 Social investments in 2013–2017, RR bln social development of local communities, healthcare facilities. and to the preservation of the Northern To develop the Yamal-Nenets Autono- peoples’ national identity. mous Region, NOVATEK focuses on the 2.8 Under the agreements signed with following: multiple regions, a substantial portion of • infrastructure development, improve- investments was directed in 2017 to the ment of living standards; Yamal-Nenets Autonomous Region, Lenin- • support of the indigenous minorities grad, Chelyabinsk, Tyumen, and Kostro- of the North; RR 2.8 ma Regions. The funds were used to build • promotion of relevant professional bln 1.9 and repair housing and social infrastruc- education; ture facilities, finance educational, cultural, • improvement of healthcare; children and youth programs and proj- • environmental initiatives; ects, and provided support to low-income • youth programs; families, veterans, disabled and elderly • targeted assistance to people. 1.2 people. 53% Cooperation with regions of In addition to the Fundamental Con- NOVATEK takes part in various proj- operations, including support 1.0 cept of Social Policy adopted back in ects and initiatives set to develop infra- of indigenous peoples of the 2006, the Company approved a Chari- structure and improve living standards of Far North 0.7 ty Policy in 2017 that regulates assistance local communities. The Company con- 23% Sports programs in the treatment of children in desper- tributed to financing the construction of 9% Educational programs ate need of medical care residing in the major social facilities in various districts of regions where the Company operates. the Yamal-Nenets Autonomous Region, 8% Cultural programs and projects including a school for 800 students in the 7% Other village of Gyda, Tazovsky District. 2013 2014 2015 2016 2017 SUSTAINABILITY REPORT 2017 External social policy 58

SUPPORT OF INDIGENOUS MINORITIES OF THE NORTH 203-1 203-2 support to vulnerable population groups: The NOVATEK Group participates in 413-1 purchases equipment for people with government programs to support the limited mobility, provides assistance to indigenous minorities of the North under In the reporting year, NOVATEK invested in the construction of sports low-income families and people in finan- cooperation agreements. and recreation facilities in Salekhard and Labytnangi to provide cial distress, veterans, children of disabled In 2017, NOVATEK provided financial space for quality recreation and health promotion for the residents people. support to the Yamal for Descendants of several districts in the Yamal-Nenets Autonomous Region. In the production sector, NOVATEK Association of indigenous peoples and traditionally supports fishery manage- its district branches. The Company ren- ment, and focuses on aquatic biodiver- dered assistance, including financial, to sity conservation programs. In 2017, the the International Forum Indigenous Peo- Sob fish-breeding farm, financed by the ples of the North, Siberia and the Far East government of the Yamal-Nenets Autono- of the Russian Federation, where discus- In 2017, the Company took part in Autonomous Region. It runs a number of mous Region and NOVATEK, was put into sion sessions were organized to review creating and equipping a network of programs set to build up its talent pool. operation. mechanisms to streamline laws and regu- Government and Municipal Service Multi- The Company designs programs for the In the reporting year, the Company lations, and enhance interaction between functional Centers (MFC) in the Yamal-Ne- education and development of gifted chil- funded the construction of a facility for regions, relevant agencies and NGOs nets Autonomous Region. Local residents dren and specialist training, and conducts the preparation and processing of deer of indigenous minorities. At one of the now have a one-stop-shop for all govern- experimental research on introducing pro- products in Gyda, Tazovsky District. The working sessions of the forum Public-Pri- ment services. This made public services fessional education in various areas. facility featuring modern equipment will vate Partnership for Social and Econom- more accessible to people and enhanced One of the major highlights in the make a great contribution to the preser- ic Development of Indigenous Peoples the overall quality of services provided. reporting year was the Center for Natural vation of traditional deer breeding on the and Their Associations, where interaction In the reporting year, NOVATEK invest- Sciences in Tarko-Sale, Purovsky District, Gydan Peninsula, and to the agricultur- between industrial companies and indig- ed in the construction of sports and Yamal-Nenets Autonomous Region, built al industry of the Yamal-Nenets Autono- enous minorities of the North was dis- recreation facilities in Salekhard and and equipped by NOVATEK. This center mous Region in general. Environmental cussed, long-standing cooperation of the Labytnangi to provide space for quali- of professional education for schoolchil- initiatives are another extremely import- Yamal LNG project with indigenous peo- ty recreation and health promotion for dren features a videoconferencing studio ant focus area of NOVATEK’s efforts ples of the Yamal District, Yamal-Nenets the residents of several districts in the with unique IT and technical equipment, to improve the living conditions in the Autonomous Region, was showcased. Yamal-Nenets Autonomous Region. and a chemical and technical laboratory. region. They include eliminating illegal NOVATEK fosters social and cultur- In healthcare, NOVATEK seeks to The Center accommodates 45 students dumps, cleaning up riverbanks, conduct- al environment: the Company supports invest in improving the quality of medical at a time. ing monitoring and ichthyologic research, creative teams, purchases musical instru- services. In 2017, the Company financed In line with its youth policy for the considerably improving the environment ments and equipment, finances cultur- equipment purchased for the Tarko-Sale Yamal-Nenets Autonomous Region, in the territories of the Yamal and Gydan al events, and provides targeted aid to Central District Hospital in the Yamal-Ne- NOVATEK supports youth centers, clubs, peninsulas, the Priuralsky District, and distressed representatives of indigenous nets Autonomous Region. and student groups on a regular basis. Bely Island. peoples. NOVATEK’s ambition is to improve the Among other things, the Company quality of education in the Yamal-Nenets provides targeted financial and social SUSTAINABILITY REPORT 2017 External social policy 59

102-44 203-1 Every year, NOVATEK participates in 203-2 events related to national and cultural 413-1 traditions, and events with social impact OG9 Spotlight on Yamal LNG such as Fisherman’s Day, Reindeer Herd- er’s Day, and the Day of the World’s Indig- enous Peoples, the Day of Older Persons, and Victory Day. Contractual and other relations with Yamal LNG lays special stress on A special package of measures pro- The Company regularly helps local the indigenous communities in the Yamal improving the quality of life of indigenous motes direct involvement of indigenous communities: in 2017, equipment and LNG project’s area are based on the prin- communities, with broader social and eco- communities in the Yamal LNG project: various inventories for fishermen and ciple of prior, free and informed consent. nomic opportunities for local residents • targeted training of personnel from reindeer herders were purchased. The To boost the effectiveness of and stream- seen among priorities. amongst indigenous communities who Company also organized helicopter flights line the ongoing and planned initiatives As part of the Indigenous Peoples’ are ready to work for the project, in to deliver nomadic people and food to supporting indigenous minorities with- Development Plan, Yamal LNG supports: order to develop skills necessary for hard-to-reach areas, and supplied fuel, in the project, the Indigenous Peoples’ • construction of residential properties, performing sophisticated works; lubricants and firewood to nomadic fami- Development Plan was created. social and cultural facilities; • priority recruitment of representatives lies and indigenous communities. In 2017, the Advisory Board held three • construction of transport and engineer- of indigenous peoples (with due NOVATEK provides targeted training meetings seeking to make joint decisions ing infrastructure; account of the appropriate level of to personnel from amongst indigenous on the environmental protection, health- • a package of initiatives to support relevant skills); minorities of the North to work for fuel and care, culture, protection and support of selected vulnerable groups of indige- • seasonal recruitment from amongst energy companies and to meet the needs the original habitat, traditional way of nous minorities of the North of various local communities, with regard to the of the Yamal District. life, husbandry and crafts of indigenous age and social background; traditional way of life and occupation. minorities of the North, along with other • organization of emergency response matters pertaining to the project’s devel- and medical care for indigenous opment and execution. communities; The Board comprises representa- • support of national and cultural tives of Yamal LNG, Government of the traditions; Yamal-Nenets Autonomous Region, • assistance in teaching students, Administration of the Yamal District, Dis- talented young people from amongst trict Grassroots Movement of the Indig- the indigenous communities; enous Peoples of the North – Yamal, • support of various youth projects; reindeer herding enterprises and indige- • assistance in the development and nous communities. improvement of trading stations; • delivery of essential goods (food, fuel and lubricants, firewood, etc.) to trading stations and remote nomad camps. SUSTAINABILITY REPORT 2017 External social policy 60

EDUCATIONAL PROGRAMS 203-1 203-2 NOVATEK stays focused on programs For many years, we have been running In 2017, NOVATEK allocated RR 94.1 413-1 set to bring professionals to the Company a continuous education project that starts mln to educational projects, up RR 50.2 and support the most qualified and edu- at schools, and is followed by specialized mln compared to 2016. cated young people across the regions of higher education, internships, and subse- operation. quent employment in the Company.

Educational programs

Title Description 2017 highlights

Since 1999, the Gifted Children program is run at secondary schools in the Samara Region, Yamal- A total of 92 school students study in three educational institutions Nenets Autonomous Region, and Tyumen. Specialized 10th and 11th grade classes are organized under this program. on a competitive basis amongst the best talents with high average marks. High school students In spring 2017, a physics and mathematics school event was held for Gifted Children have a special training program. The standard curriculum is extended to include courses in applied students of specialized classes. We also organized a vocational trip physics, mathematical methods of physics, advanced mathematical tasks, history of world to the NOVATEK Scientific and technical center. culture, and economics. In 2017, the program expenditures amounted to RR 7.5 mln.

Grants programs The Company runs two Grants programs, and spent RR 207 thousand on them in 2017.

In 2017, 38 grants were awarded. Grants for The program was launched back in 2004 to foster intellectual and creative development of schoolchildren. Under the program, 5–11th grade students of the Purovsky District, YNAO, receive Schoolchildren Over the years of the program’s existence, local students have the Company’s grants on a competitive basis. benefited from a total of 1,573 grants.

In 2017, 3 grants were awarded to teachers in the Purovsky District, Grants for The program was launched back in 2008 and seeks to improve the occupational prestige of the YNAO. Teachers teaching profession and facilitate new talent discovery. Overall, local teachers benefited from a total of 75 grants.

To create conditions for more effective use of university resources in training students for In 2017, 11 graduates found jobs with the Company’s subsidiaries. future professional activities, the Company has developed and is successfully implementing the 21 students completed internships at NOVATEK. NOVATEK-VUZ program. As of 31 December 2017, 79 NOVATEK-VUZ graduates are employed by The program covers such universities as the Mining University (St Petersburg), Gubkin Russian the Group. State University of Oil and Gas (Moscow) and the Industrial University of Tyumen. In May 2017, Skolkovo hosted the 10th student forum of the The most talented graduates of the Gifted Children Program, the children of the Group’s NOVATEK-VUZ NOVATEK-VUZ program. At the event, a meeting with NOVATEK’s employees, and other promising graduates of schools in the Purovsky District, YNAO, are eligible management team was held, where students shared their ideas and for the NOVATEK-VUZ program. initiatives focusing on markets, technology, new products, and new The program’s participants receive the following support: professions. In 2017, the program expenditures amounted to RR 25.95 mln. • allowance added on top of the state scholarship conditional on academic performance; • commuter allowance to travel home and to the internship site; • making arrangements for paid internships. As part of trustee support to the Higher School of Economics (National Research University), In 2017, the Company spent a total of RR 60.45 mln to fund its HSE Lyceum NOVATEK provides financial aid to HSE Lyceum. development program. SUSTAINABILITY REPORT 2017 External social policy 61

PRESERVING CULTURAL HERITAGE 203-1 413-1 NOVATEK cooperates with Russia’s • Since late 2015, in a joint effort with the Gogol Center, that put on plays from leading cultural institutions: the State Rus- museum’s educational department we the Star series of performances ded- sian Museum, Multimedia Art Museum, and have been teaching special courses in icated to the lives and works of the Spotlight on Yamal LNG the Moscow Museum of Modern Art. In the the history of Russian and internation- most prominent poets of the 20th cen- reporting year, the Company supported al art, photography, and architecture to tury – Boris Pasternak, Osip Mandels- artistic and musical projects in Russia and our employees and their families. tam, Anna Akhmatova, Vladimir Maya- In 2017, Yamal LNG financed the abroad. • For several years, NOVATEK has been kovsky, Mikhail Kuzmin. establishment of the Limbya Nomad Major cultural events enjoyed the general partner of a major project • In 2017, NOVATEK also continued as a Camp created: NOVATEK’s support. of the Multimedia Art Museum – His- general partner of the Moscow Solo- • to explore, preserve and promote • The State Russian Museum hosted two tory of Russia in Photographs. In 2017, ists Chamber Orchestra led by Yuri historical and cultural heritage of exhibitions dedicated to the centenary the project saw several exhibitions, Bashmet. It was the first time the Com- indigenous peoples; of the October Revolution. In addition, such as Russia. 1917 in St Petersburg, pany supported the performance of • to foster environmental awareness NOVATEK sponsored, once again, the The Industrial World through the Eyes MusicAeterna, the orchestra of Teodor among children and teenagers; annual Imperial Gardens of Russia, a of Alexander Rodchenko in Nizhny Currentzis, at the Salzburg Festival, • to engage in education, culture and festival of garden and park art. Novgorod, Russia. XX Century in Pho- that became the musical event of the entertainment activities; • The Moscow Museum of Modern Art tographs. 1941–1945 in Samara and year. Russian musicians opened the • to develop traditional arts and crafts presented Nepokorennye Prospect, an Lilya Brick. The Journey That Never main part of the festival, for the first (giving master classes); exhibition staged by a team of young Happened in Ulyanovsk. time ever. • to make the Yamal District more artists from St Petersburg. The Com- • NOVATEK is an official partner of the • NOVATEK and the State Hermitage appealing to tourists; pany also provided assistance for the International Festival held by TERRI- Museum took part in the exposition • to popularize cultural values of the opening of the museum’s Educational TORIЯ, school of contemporary art. In Peter the Great. A Tsar in France. 1717 Northern indigenous minorities; Center. 2017, the festival showcased Russian hosted by the Palace of Versailles. The • to engage media in covering tradition- and international plays and exhibitions, respective presidents of Russia and al cultural activities. and organized an educational pro- France – Vladimir Putin and Emman- gram. The Company also supported uel Macron, attended the opening Limbya Nomad Camp is often visit- ceremony. ed by children from the local kindergarten, students of the Yamal orphanage, residents and visitors of Yar Sale, a local village. SUSTAINABILITY REPORT 2017 External social policy 62

PROMOTION OF SPORTS HELP TO CHILDREN IN DIRE NEED NOVATEK supports active lifestyles NOVATEK also provides assistance to The Company’s Charity Policy focus- Region. These devices are unique in a way and recognizes the major role of sports in the Student Basketball Association with es on several areas with helping chil- that the procedure can be home-based. people’s lives. The Company runs numer- more than 800 teams from 71 regions and dren, mainly those with various diseases, In 2017, NOVATEK repaired educational ous amateur sports programs and tradi- more than 10 thousand boys and girls par- orphans and children in residential care and residential premises at orphanage No. tionally supports professional sports. ticipating in competitions. facilities, being the top priority. In 2017, 13, the Company’s sponsored institution in The Company’s employees play in cor- In professional sports, in 2017, NOVATEK adopted the Charity Policy, Chelyabinsk. Each year, we provide sup- porate sports teams and regularly take NOVATEK supported the Figure Skating which outlines the key goals and objec- port to the orphanage’s first-graders and part in tournaments in the most popu- and Ice Hockey Federations of YNAO and tives, guidelines and principles of support- graduates. NOVATEK on an annual basis lar and widespread participatory sports, the Volleyball Federation of the Tyumen ing children. holds festive and thematic events for chil- such as football, volleyball, swimming, Region. In the reporting year, the Company pro- dren living there, while the best students skiing, etc. The Russian Federation of Danc- cured equipment for regional healthcare have an opportunity to travel to the Black NOVATEK has been supporting youth eSport and Acrobatic Rock’n’Roll, and the facilities, and financed children’s treatment Sea. In December 2017, NOVATEK held sports across its footprint. In 2017, the tra- Company have been supporting corpo- and rehabilitation programs. a special event for little orphans in baby ditional NOVATEK — Step to Bigger Foot- rate dance sport and acrobatic rock’n’roll In 2017, the Company cooperated with houses of Chelyabinsk and Troitsk. ball Indoor Football Cup tournaments clubs in the regions of operation since the YAMINE Charity Foundation (YNAO). The Company helped the Kostroma among secondary school teams were 2016. In April 2017, members of the clubs Three priority programs for the region’s Region children’s hospital and Kostroma held in the Chelyabinsk and Kostroma participated in the first nationwide acro- children were selected: tuberculosis dispensary to purchase medi- Regions, and were attended by sever- batic rock’n’roll competition with the • “Ya Sam” (On My Own) – rehabilitation cal refrigerators. On top of that, specialized al thousand boys and girls. The winning Kostroma team coming out on top. of disabled children with cerebral palsy; equipment for play rooms in the Kostroma teams of the regions met in Sochi to fight In the reporting year, NOVATEK contin- • “Miloserdiye” (Mercy) – aid to children orphanage for children with central ner- for the Super Cup. The Super Cup was ued cooperation with the Football Union with severe diseases, including vous system diseases and mental disor- awarded to the winner by Mário Fer- of Russia as the General Partner of the oncological ones; ders was acquired. nandes, Russia’s national team player. All Russian National Football Teams. The • “Otkryty Mir” (Open World) – aid to participants of the Super Cup game had Company supported women’s volleyball children with psycho-neurological an opportunity to attend a warm-up match club Dinamo and men’s NOVA Volleyball disorders. between the Russian and Belgian nation- Club (Novokuybyshevsk). The core principles of al teams. To promote healthy lifestyles and In the reporting year, we supported NOVATEK’s Charity Policy: sports, the Company helps employ- “Rucheyok”, a corrective kindergarten for ees and their families attend sports children with visual impairments in Novy • transparent charitable competitions. Urengoy: the Company purchased spe- activities; cialized literature for blind and visually • consistent implementation of impaired children. charitable programs; In 2017, NOVATEK provided support to • equal access of children the federal charitable project Artificial Kid- to charitable programs ney. The Company purchased dialysers regardless of their nationality, for blood hemodialysis of children waiting religion and social status. for kidney transplantation in the Tyumen SUSTAINABILITY REPORT 2017 External social policy 63

VOLUNTEERING AID TO VETERANS In December 2017, in the context of Since being founded in 2008, During the year, NOVATEK’s activists In 2005, NOVATEK founded the annual decade of disabled persons, we NOVATEK’s All Together volunteer move- partnered up with the Enjoyable Age- NOVATEK-Veteran Social Protection Foun- provided assistance to kindergarten No. ment has come a long way. Each year it ing charitable foundation on a drive to dation in the Purovsky District (Yamal-Ne- 53 in Kostroma for children with autism expands into new regions while staying help bedridden seniors in the retire- nets Autonomous Region) that focuses spectrum disorders, Down syndrome and true to the Company’s core values: the ment homes across the Tula, Pskov, Tver on providing social assistance to retired other disabilities. Specifically, the Compa- volunteers assist orphaned children, chil- and Ryazan regions, which are short on ex-employees of the oil and gas sector ny bought educational games and meth- dren with various illnesses, and elderly nurses. The raised funds went towards with a considerable employment track odological guidelines for the kindergarten. people. expanding the care-taking staff. record in the Russian Far North. For several years, the Company has In 2017, as they do every year, The volunteers continue to sup- In 2017, the foundation organized con- supported the social and rehabilitation NOVATEK’s volunteers arranged various port the Home of ROST Initiative (Iva- certs and events dedicated to various art- center at the Trinity Church (Kolomna, Mos- activities for the kids leaving Orphan- novo Region, Petrovsky Settlement) ists for the retirees. cow Region). The center’s charity school age No. 2 in Vyshny Volochok and gave that prepares orphaned children for The foundation’s staff paid Victory accommodates 25 children aged from 4 them household items as presents for life in adoptive families and provides Day tribute to World War II veterans and to 16. In 2017, the Company provided aid their new homes. At the end of the fes- them with comprehensive development home front workers, giving them finan- in procurement of supplies for the new tivities, the volunteers and kids went to opportunities. cial support, flowers and gifts. For several school season. the orphanage’s garden to plant currant, In December 2017, NOVATEK’s Mos- consecutive years now the seniors have As part of cooperation with the “Mesto which will serve as a symbol of growing cow office hosted the traditional Tree of been taking part in the Immortal Regiment Pod Solntsem” (A Place in the Sun) charity up, staying in touch with the roots and Wonders event to collect New Year gifts march on 9 May. foundation (Leningrad Region), for a few starting on an independent path. for children of the Obninsk and Dubaso- During the reporting year, the founda- years now, the Company has been help- In 2017, the Company took part in vo orphanages and the Noginsk social tion continued providing aid to seniors ing with the foundation’s strategic project renovating Mosolovo’s orphanage in and rehabilitation center. through partnerships with Tarko-Sale – Support of Employment and Work of the Ryazan Region and outfitting boys’ organizations and businesses. Together Disabled Young People. dormitories. with the Purovsky District’s Comprehen- sive Social Support Center, it established a visiting nurse service. As at the end of 2017, 866 pensioners were registered in the foundation, and Spotlight on Yamal LNG quarterly financial support for each during the year amounted to RR 6,000. In 2017, Yamal LNG paid for the treatment of 12 persons from low-income families, disabled persons In total, the Company allocated RR and pensioners, including for travelling to the healthcare facility and medicines. 31.6 mln to the foundation in the report- Nine people in difficult life situations were also assisted in the reporting year. ing year, which is RR 6.9 mln more than in 2016. SUSTAINABILITY REPORT 2017

EMPLOYMENT PRACTICES SUSTAINABILITY REPORT 2017 Employment practices 65 Employment practices

EMPLOYEE PROFILE 102-7 102-8 NOVATEK adheres to social partner- As at the end of 2017, the headcount Most of the staff is hired under open- The majority of NOVATEK’s employees ship principles in its employment relations. of NOVATEK and its subsidiaries and joint term employment contracts (over 90%) on are male (75%), which is dictated by the Striving to be a responsible employer, the ventures numbered 12,236* people, the a full-time basis (over 99%). This Report nature of the Company’s operations, i.e. Company not only observes applicable better part of whom (65%) worked in the does not include part-timers, as their Far Northern geography and rotation job laws, but also takes on a number of volun- Yamal-Nenets Autonomous Region, the share is marginal to the Company (below arrangements. This kind of work has tra- tary obligations to develop, train, and pro- Company’s core region. 0.5%). NOVATEK sources minimal ser- ditionally been carried out mostly by men, vide social assistance to and incentives for vices from freelancers, sole proprietors or given that it requires higher endurance the personnel. NOVATEK’s employees are practitioners. its core stakeholders whose opinions and interests are highly valued. The reporting year saw the Compa- Personnel structure by regions Personnel structure by gender, % ny’s HR policy take a big step forward with the approval of two by-laws, namely, Staff Mobility and Building and Managing the Talent Pool. In 2017, the Company also approved Regulations on the Novator Cor- porate Idea Management System. In May 2017, the NOVATEK Group held a forum for its executives devoted to the shift from operational to strategic 12,236 management. employees The Company’s management organized regular meetings with the CEOs of subsidiaries and joint ventures to discuss strategy and NOVATEK’s current plans.

65% YNAO 75% Male 35% Other regions 25% Female

* Hereinafter (in the text and calculations behind the figures reported), this number accounts for full-time employees, with NOVATEK, its subsidiaries or joint ventures as their primary employer. It does not cover the employees working at LLC Severneft-Urengoy, JSC Yuzhno-Khadyryakhinskoye and JSC Eurotek. However, when calculating the data used in the subsections “Corporate technical competency assessment system” and “ Personnel training and development”, employees of these companies are taken into account. SUSTAINABILITY REPORT 2017 Employment practices 66

401-1 and mobility and hence may not always In 2017, NOVATEK hired 1,542 new NOVATEK ensures that its employees NOVATEK personnel’s minimum com- be performed by women. That said, both employees*, while 133 people went on get fair pay for their work. Under the col- pensation in the key region of operation men and women enjoy an equal wage maternity and child care leaves. The Com- lective bargaining agreement, the employ- (YNAO) was significantly higher than the rate as well as equal career opportunities pany has a low employee turnover with ees’ monthly salary cannot be lower than local minimum wage. The Company index- at NOVATEK. just 746 people having resigned in 2017**. the official local minimum wages. In 2017, es its staff salaries on a regular basis. The average employee turnover rate for the NOVATEK Group stood at 6%***.

* The number includes only those employees who worked in the Company until the end of the reporting year. ** The number of employees who resigned during the reporting year. Personnel structure by age, % Personnel structure by type of contract, % *** The employee turnover rate is calculated as resignations divided by average headcount at the year-end. Percentage is calculated as the resulting value multiplied by 100.

NOVATEK’s employees are its core stakeholders whose opinions and interests are highly valued.

15% Under 30 90% Open-term 70% 30 to 50 10% Fixed-term 15% 50+ SUSTAINABILITY REPORT 2017 Employment practices 67

202-1 Management breakdown by gender Management breakdown by age Personnel structure by line of activity, %

185 185 employees employees

19% Female 1% Under 30 57% Exploration and production 81% Male 75% 30 to 50 19% Transportation and marketing 24% 50+ 11% Processing 7% Administrative personnel 5% Power supply 1% Auxiliary production

Personnel’s minimum compensation

Moscow YNAO

NOVATEK personnel’s minimum compensation in 2017, RR 38,236 28,340

Minimum wage (before 1 October 2017), RR 17,561 16,299

Minimum wage (after 1 October 2017), RR 18,742 16,299 SUSTAINABILITY REPORT 2017 Employment practices 68

CORPORATE TECHNICAL COMPETENCY PERSONNEL TRAINING AND ASSESSMENT SYSTEM DEVELOPMENT 404-1 Number of people who The NOVATEK Group makes use of a As a key priority of NOVATEK’s HR pol- In 2017, over 4,500 employees of the 404-3 underwent professional potential corporate technical competency assess- testing in 2013–2017 icy, personnel training and development NOVATEK Group were trained in a variety ment system, which allows it to monitor helps create a quality talent pool, boost of programs embracing over 300 thou- the growth of the engineering staff’s com- loyalty and build up knowledge and skills sand hours in total. petencies to build a balanced talent pool of staff. and assess skills and competencies when employing people. A total of 901 people were tested under the system during the year, including 66 1,019 people engaged to fill vacant positions and 64 employees promoted to higher 936 Average training hours by gender in 2017 positions. 901 Male Female

Employees 9,517 3,078

701 Total training hours 286,551 27,396

Average training hours per employee 30.11 8.9

Average training hours by position in 2017 343 Average training hours per employee trained

Top managers 33.29

Middle managers 45.88

White-collar employees 40.12

Blue-collar employees 66.13

2013 2014 2015 2016 2017 SUSTAINABILITY REPORT 2017 Employment practices 69

404-2 Training and development programs Research-to-practice conference for young talent Program Description 2017 highlights In September 2017, Moscow hosted the 12th Interregional Research-to-Prac- Professional development The program aims to enhance employee The program covered 38% of white- and blue-collar tice Conference for the Company’s young program skills and improve working conditions to employees. talent, attended by 61 employees. All win- ensure a healthy and safe environment ners in the competition held as part of the at production facilities. event received cash awards, with eight top performers also granted an opportuni- In-house training program NOVATEK Scientific and technical center NOVATEK Scientific and technical center offered new ty to study at petroleum training centres in has been running the program since 2016 to courses in basic well modelling, use of digital models in France and Italy. ensure knowledge transfer and professional analysing the technological process; basic design and development of employees. The training is operation of gas and gas condensate treatment facilities; developed and provided by the Company’s well construction, casing, geomechanics; production Professional skills contest in-house experts. engineering for underexplored fields; basic hydrodynamic In October 2017, the Company held research; directional drilling. the third professional skills contest among The program covered 125 employees of NOVATEK its blue-collar employees. The event subsidiaries. brought together 74 employees from eight NOVATEK Group’s companies, who com- Steps in Discovering Talents The program targets young talent to The Company saw the fifth batch of trainees complete peted in two rounds that tested their theo- program facilitate their, professional development the program. retical knowledge and practical skills. and adaptation to a new job. Based on the mentoring approach, it also offers the The program covered 26 young specialists. Mentoring Culture course to train staff for The training was offered by as many as seven facilities. Novator idea management system the role. In 2017, NOVATEK and its 14 subsidiar- The Mentoring Culture course covered 31 mentors. ies and joint ventures launched Novator, In 2017, NOVATEK’s young talent was trained in value creation, self management, cross-functional interaction, a company-wide system to automatical- and presentation skills. ly collect and process employee ideas on improving and developing business processes, including labor-saving proposals. Training program for CEOs of Ongoing since 2017, the program aims to The CEOs studied value creation approach in economics The system aims to enhance employees’ NOVATEK’s subsidiaries and joint develop professional competencies of top and finance. ventures executives from NOVATEK’s subsidiaries and intellectual potential and improve oper- joint ventures in a variety of areas related to ating performance. NOVATEK started its operations. encouraging its employees to share innovative ideas quite a while ago, with only SUSTAINABILITY REPORT 2017 Employment practices 70

TRADE UNION RELATIONS SOCIAL POLICY a few facilities initially involved in collect- Forty-eight percent of the Company’s potentially challenging issues and respond In close cooperation with employees ing and implementing them. Today, the employees are trade union members. The to them at short notice. As a result of this and trade unions, the Company launched most valuable ideas are rolled out com- constructive dialogue between the Com- collaborative approach, the Company has a number of comprehensive targeted pro- pany-wide in a variety of areas, including pany’s management and trade unions never seen a single case of stoppages or grams to support employees in dealing but not limited to production and manage- helps defuse social tensions related to strikes due to labor disputes. with social issues they might face at work ment (e.g. health and safety). The report- labor disputes. Regular talks with trade In 2017, the Company spent a total of and at home. All social programs are sub- ing year saw 280 proposals submitted unions have contributed to the establish- RR 5.1 mln to support trade unions. ject to annual review for relevance and via the Novator, with 40 approved for ment of an effective workforce feedback, effectiveness. In 2017, NOVATEK’s social implementation. which allows the Company to identify expenses to support employees exceeded RR 1.4 bln.

Idea life cycle and remuneration of Novator system

Awarded points Awarded points Implementation-linked Final remuneration linked remuneration to economic effect

Review by the officer in charge Review by the Commission Implementation Economic effect

Up to three days At least once a month Up to a year A year after implementation NOVATEK and its 14 subsidiaries and joint ventures launched Novator, a company- wide system to automatically collect and process employee ideas on improving and developing business processes, including labor-saving proposals.

Uniform registration of ideas. Calculations and feasibility Regular progress reports. Final report. study. Viability assessment by officers/ Decision on roll-out. experts in charge. Decision on feasibility. SUSTAINABILITY REPORT 2017 Employment practices 71

The Group’s total expenses on Number of employees and their Number of employees who received awards in 2017 targeted social programs in family members covered by the 2013–2017, RR bln therapeutic resort treatment program in 2013–2017 Award Number of awardees

Government awards

3,850 Distinguished Employee of the Russian Oil and Gas Industry 3

3,479 Distinguished Geologist of Russia 1

Distinguished Energy Industry Worker of Russia 2

Industry awards

Certificate of Merit from the Russian Ministry of Energy 21 2,464 Letter of Acknowledgement from the Russian Ministry of Energy 14

1.4 1.4 1.4 Medal of Merit for the Fuel and Energy Sector Development 1 1.3 1,882 1.2 1,876 Corporate awards

Honored Employee of NOVATEK 5

NOVATEK Certificate of Merit 198

NOVATEK Letter of Gratitude 219

Subsidiary awards

Subsidiary Certificate of Merit 313

TOTAL: 777

2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 SUSTAINABILITY REPORT 2017 Employment practices 72

201-3 NOVATEK’s social programs

Program Description 2017 highlights

The program provides for a targeted free support to the Company’s employees in specific personal Special-purpose compensation circumstances, including childbirth, surgery, rent of housing, relocation from the Far North, etc. In 2017, the Company allocated RR 492.8 mln and social support payments To facilitate rehabilitation of temporarily disabled employees, the Company offers compensations in for the program. excess of statutory payments.

In 2017, the program covered 3,834 employees The program provides compensations for vacation travel expenses (round trip travel expenses and State guarantees and their families. baggage fees) for employees living in the Far North and areas of equal status, and unemployed members support of their families. In 2017, the Company allocated RR 94.1 mln for the program.

Voluntary medical insurance Provided in addition to compulsory health insurance, the program covers full outpatient care, dental care, In 2017, the Company allocated RR 157.5 mln for employees emergency and scheduled hospital care. for the program.

The program provides funds to purchase health resort treatment packages for employees and their In 2017, the program covered 3,850 employees. Therapeutic resort treatment families at a discount. As part of the program, the Company partners with a variety of health resorts in and rehabilitation In 2017, the Company allocated RR 154.8 mln some of the most beautiful Russian regions. for the program.

As at the end of 2017, the program covered In 2007, the Group launched a post-employment benefit program for its retired employees in line with 866 people. the Regulations on Social Benefits for Retired Employees of NOVATEK Group. Under the current terms of the pension program, employees who have worked for the Group for more than five years and retire on In 2017, the Company allocated RR 68.0 mln for or after the statutory retirement age are entitled to monthly payments from the Group unless they are the program. Pension program actively employed. The value of defined benefit obligations is The program represents an unfunded defined benefit plan, with payments calculated on the basis of included in other non-current liabilities in the inflation forecasts, pay growth rate, the Company’s remuneration policy, and demographic assumptions. consolidated statement of financial position and stands at RR 3.2 bln as at 31 December 20 17. SUSTAINABILITY REPORT 2017 Employment practices 73

201-3 Program Description 2017 highlights

Loans

In 2017, the program covered 170 employees. Special-purpose short-term Under the program, employees can draw special-purpose loans to pay for tuition, social and welfare loans needs, renovation, and to relieve the effect of having their money stolen. In 2017, the Company allocated RR 27.2 mln for the program.

In the reporting year, the program covered 37 Interest-free special-purpose The program provides special-purpose interest-free home loans to employees residing in Tarko-Sale, Novy families. home loans Urengoy, Moscow, Nadym, Sosnovy Bor and Tyumen. In 2017, the Company allocated RR 161.0 mln for the program.

In the reporting year, various awards were NOVATEK’s top-performing employees receive government, industry and corporate awards, and distinctions given to 777 employees. Corporate awards program from the Company’s subsidiaries. In 2017, the Company allocated RR 17.6 mln for the program.

Cultural and sporting program In 2017, the Company allocated RR 131 mln for the program.

The Company rents gyms, swimming pools and playgrounds and offers its employees partial reimbursement Sporting events of membership fees. In 2017, the Company hosted annual futsal, volleyball and swimming competitions.

Throughout the reporting year, the Company’s employees went on exhibitions and excursions to the Multimedia Art Museum, Museums of Modern Art, Moscow Kremlin Museums, and State Tretyakov Gallery. On 4–6 August, the Moscow Office’s employees travelled to the Sviyazhskiye Kholmy (Sviyaga Hills) resort to visit the event called NOVATEK: Journey in History. As part of the trip, they also visited Kazan, Sviyazhsk and a shooting club. On 5 August, everyone was invited to the dinner party, awarding Cultural events ceremony and show. On 2 September, the Tarko-Sale Children’s School of Arts invited employees of the Company’s subsidiaries to visit the NOVATEK: Art of Work event dedicated to the Oil and Gas Industry Worker Day. At a special meeting, the Company showed videos on the past year’s landmark events at its nine facilities and granted corporate and industry awards to the best-performing employees. The meeting closed with a traditional welcoming ceremony for the Company’s new talent. SUSTAINABILITY REPORT 2017

PROCUREMENT PRACTICES SUSTAINABILITY REPORT 2017 Procurement practices 75 Procurement practices

PROCUREMENT APPROACH 102-9 NOVATEK’s procurement activities NOVATEK’s procurement framework The Company imposes stringent The supplier and contractor selec- comply with the Russian laws and corpo- combines centralized selection of sup- requirements on its suppliers, and care- tion procedure that may involve collec- rate by-laws. The Company purchases pliers and decentralized purchases. To fully checks relevant documents (certifi- tive bodies is well-regulated and ensures materials and supplies based on the fol- effectively manage costs, the Company cates, licenses, membership in and permit transparent and effective decision-mak- lowing principles: has centralized the procurement of stra- from the self-regulated organization). ing, non-discrimination and objectivity. • equality of all potential bidders; tegically important materials and sup- The bidders must meet specific procure- To provide for uninterrupted quality • fair competition of suppliers; plies, and items whose grouping into ment requirements and have technical supplies, NOVATEK reviews qualifications, • priority of equipment and material one lot is economically justified. In value capabilities, production capacities and technical and production capabilities of producers over trading and procure- terms, these items make up 50% of all staff in place to render services or pro- future suppliers. This open process takes ment companies; purchased materials and supplies. Oth- vide materials and supplies. On top of place simultaneously with procurement. • long-term partnership with key er items are procured by subsidiaries that, NOVATEK applies zero tolerance The Company’s supplier pool compris- manufacturers; and joint ventures under the supervision approach to illegal activities of poten- es the largest domestic and international • optimal price/quality ratio and strict and with the methodological support of tial suppliers (e.g. corruption, collusion, producers and their official represen- compliance with delivery deadlines. NOVATEK. unfair competition) and avoids unreliable tatives. The Company places a strong The Company’s procurement practices counterparties. emphasis on strategic cooperation with rely on open tenders. Any company may As per the supplier qualification proce- and development of key suppliers, while take part in a tender, as long as it is eligi- dure, the Company selects the bid winner also seeking to engage domestic produc- ble and has filed a duly completed appli- based on the following criteria: ers in its investment projects. cation form. All tenders are held using an price and quality of products or The core procurement • electronic bidding platform. services; document is the Regulations delivery time; on Organizing and Holding • financial stability and business of Competitive Tenders at • reputation; PAO NOVATEK. • availability of production and technical capabilities, required equipment, along with engineering and blue-collar staff. SUSTAINABILITY REPORT 2017 Procurement practices 76

SUPPLY CHAIN MANAGEMENT IMPORT SUBSTITUTION POLICY 102-9 Procurement breakdown in 2017 204-1 NOVATEK’s supply chain manage- If a construction company or other con- As part of procurement management, ment is a complex process that embrac- tractor provides the goods or services, NOVATEK pays a lot of attention to sub- es a number of interrelated elements: NOVATEK controls the quality and tim- stituting imported process equipment and inventory management, supplier qualifi- ing of supplies, along with procurement gives preference to domestic manufactur- cation and selection, obligation manage- expenses. ers provided that their equipment meets ment (including production quality control), technical requirements and is competitive- incoming inspection, and movement of Procurement highlights ly priced. inventory. Supply chain management is In 2017, the Group procured RR 705.8 The Company’s experts are work- closely linked with other processes, such bln worth of goods and services. Suppli- ing with relevant ministries to develop as contract management, budgeting, and ers from the Yamal-Nenets Autonomous RR 705.8 strategic planning documents for import planning. When procuring expensive or Region accounted for 68% of all procured bln substitution. strategically important items, the Compa- items. To substitute imported products, the ny sets up dedicated groups made up of NOVATEK’s Engineering and Invest- Company invests in proprietary technolo- technical experts with an extensive exper- ment Department compares quotes from gy and facilities (especially LNG plants). In tise in a variety of areas. prospective suppliers with average mar- 2017, Yamal LNG approved the construc- The procured items include piping, ket prices and against existing contracts. tion of a fourth LNG train ith a capacity valves, Christmas trees, rotating (com- of 0.9 mtpa based on NOVATEK’s “Arctic pressors, gas compressor units, pumps, Cascade” liquefaction technology. At pres- engines, etc.) and static (heat exchangers, ent, the Company is building an innovative tanks, etc.) equipment, instrumentation, 68% Suppliers from the Yamal- center for the construction of large-scale Nenets Autonomous Region automated control systems, steelwork and offshore structures to manufacture gravi- various materials. 32% Other suppliers ty-based LNG plants, commonly referred to a GBS units.

Procurement overview

Production Material Inventory Supplier Supplier Obligation Incoming requirement requirement management qualification selection management inspection planning planning SUSTAINABILITY REPORT 2017

OCCUPATIONAL HEALTH AND SAFETY SUSTAINABILITY REPORT 2017 Occupational health and safety 78 Occupational health and safety

OUR APPROACH TO HEALTH AND SAFETY NOVATEK values its employees’ health and well-being above business performance and is fully aware of its responsibil- Occupational health and safety (OHS) goals: ity to ensure accident-free operation, safe working conditions, and population health • Minimize risks and prevent threats of accidents and injuries to the workforce wherever achievable given the Com- across the Company’s footprint. pany’s current capabilities and resources NOVATEK has an integrated manage- • Comply with Russian OHS laws, aim to meet relevant international standards and best practices ment system for occupational health and • Continuously improve and enhance the OHS management system based on control and monitoring results, as well safety in place (in line with OHSAS 18001*). as routine audits and regular reviews of the system’s effectiveness It forms a part of the Company’s gener- • Create comfortable working conditions aimed at reducing the occupational diseases rate and the number of work al management system and enables risk days lost management that is based on a key guid- • Ensure that the management bodies, employees and emergency rescue teams are ready to contain and eliminate ing principle: priority of accident preven- the consequences of potential accidents, fires, and emergencies. tion over containment and elimination of consequences. The Company’s operations include exploration, production, processing, transportation and marketing of natural gas and liquid hydrocarbons, which means working with flammable and explosive facilities that require it to maintain the highest occupa- • identification, assessment and various types of equipment (external and NOVATEK also ensures that its poten- tional safety standards in managing com- forecasting of accident risks; internal inspection, hydrostatic and pneu- tial contractors uphold OHS standards. plex technological processes. Works and • planning and implementation of matic tests, and industrial safety audits). In OHS requirements form an integral part services at these hazardous production accident risk mitigation measures; 2017, the Company performed industrial of agreements between subsidiaries and facilities (HPF) are rendered in line with • coordination of activities to prevent safety audits of 255 equipment items and contractors. The agreements provide for OHS laws. accidents and incidents; extended their safe operating life. penalties in case of breach of OHS rules To prevent accidents and incidents, as • industrial control procedures; In order to protect employees’ right to by contractors. well as to ensure that they are properly • employee participation in the develop- workplace safety, the Company regularly The Company participates in OHS-pro- contained and dealt with by the subsid- ment and implementation of measures performs special assessment of working moting initiatives and works on an ongo- iaries that operate Class I and II HPFs, the to mitigate accident risks. conditions to identify and eliminate haz- ing basis to raise employees’ awareness Company approved the industrial safety ardous workplace factors. In the report- in this area. management system and developed the To prevent accidents and incidents, ing year, the Company carried out special NOVATEK also contributes to improv- industrial safety declaration that regulate each year the Company develops and assessments of 5,584 workplaces. No ing relevant legislation and takes an active the following processes: consistently implements technical inspec- workplaces with hazardous working con- part in assessing the impact of various tion, certification and test schedules for ditions were identified. draft regulations related to OHS.

* Seven out of ten (70%) NOVATEK’s subsidiaries engaged in hydrocarbons production, transportation and processing are certified under OHSAS 18001. SUSTAINABILITY REPORT 2017 Occupational health and safety 79

OPERATIONAL CONTROL ACCIDENTS AND INCIDENTS OG13 In line with the applicable OHS laws, In 2017, the NOVATEK Group recorded the Company’s subsidiaries perform oper- three incidents at its hazardous production ational control at the existing hazard- facilities. There were no accidents in the ous production facilities. In 2017, relevant reporting year. commissions conducted 344 OHS compliance audits and produced the respective reports. All violations identified by the audits were rectified in due time. In 2017, NOVATEK’s commission conducted comprehensive and ad hoc Details on the incidents in 2017 inspections at the Group’s subsidiaries and joint ventures for compliance with occupational, industrial, and fire safety and Date of incident Entity Description Consequences environmental protection requirements. In the reporting year, we held comprehen- 16/04/2017 ARCTICGAS Unsealing on the PK (97+58)–PK (100+28) section of the No injuries. sive inspections at four subsidiaries and gas flowline from gas condensate well pad No. U07 of the Urengoyskoye field within the Samburgskiy license area, which ad hoc inspections – at six subsidiaries. was caused by erosion-corrosion wear of metal on the bottom Based on their findings, we developed rel- generating line of the welding joint’s heat-affected zone. Failure occurred across the perimeter of the pipe-side seam, evant reports and remedial measures. with both elements opening on the bottom generating line. Irrespective of the special assessment This resulted in a spill of 0.5 cubic meters of condensate fluid of working conditions and presence of in the form of dispersed dust, which landed on snow. The amount of gas condensate fluid lost due to dispersion and excessive hazardous workplace factors, evaporation was 1,006.3 cubic meters. NOVATEK’s subsidiaries monitor compliance with sanitary and epidemiologi- cal regulations. The main objective of our 19/06/2017 NOVATEK- Brownouts in the entry system of 110 kV Kirpichnaya–Pur Equipment shutdown did not 18/07/2017 PUROVSKY ZPK power line to 110/10 kV Purovsky Plant and Limbey substations affect feedstock reception operational control is to eliminate even the led to partial equipment shutdown and caused interruption or production and shipping slightest chance of adverse health impact, in the continuous technological process. The drops in voltage processes. Neither incident damage to the Company’s property due occurred due to the power cut on the Kirpichnaya–Pur line caused any environmental because of lightning overvoltage on the grid followed by damage nor injuries. to accidents, and legal consequences successful automatic reclosing. Diesel power plants were set arising from non-compliance with safety up to provide emergency power. requirements. SUSTAINABILITY REPORT 2017 Occupational health and safety 80

WORKPLACE INJURY RATE OHS TRAINING FIRE SAFETY, CIVIL DEFENCE AND EMERGENCIES 403-2 OG13 In 2017, the NOVATEK Group record- Health and safety training is mandato- Since the Company’s business direct- form firefighting as well as emergency ed 13 workplace accidents: 11 minor injury for all employee categories across the ly involves operation of facilities exposed response and rescue operations. We also ries, one severe injury, and one fatality. All Group. Unit managers, including top exec- to fire and explosion risks, fire safety is a outsource fire safety services and engage accidents occurred in the Yamal-Nenets utives, study at special training centers, top priority for NOVATEK. The Company’s licensed contractors. Subsidiaries operat- Autonomous Region; and all of the injured and white-collar employees can attend IMS includes a fire safety system coming hazardous industrial facilities that pro- were males. specialized corporate training programs pliant with the Russian law. The system’s duce, collect, process and manufacture In the reporting year, the injury and overseen by certification commissions objective is to prevent fires and protect explosive and 18 professional emergency severity rates amounted to 1.27 and 53, that assess attendees’ knowledge based people and property in case of a fire or an response and rescue teams protect flam- respectively*. on the applicable OHS laws. In 2017, OHS emergency. mable substances. In addition, we have OHS divisions of the Company’s sub- training costs amounted to more than In 2017, seven NOVATEK’s subsidiar- decided to build fire stations and establish sidiaries track contractors’ workplace RR 6.0 mln, and certification costs were ies had licenses to service firefighting emergency response and rescue teams injury statistics in line with contractual above RR 9.7 mln. equipment, four subsidiaries – to per- within prospective field development and procedures. On top of that, all of the Company’s construction projects. All accidents were investigated in subsidiaries hold working meetings where accordance with the applicable laws and management and employees discuss local regulations. Every accident was OHS issues. investigated by a dedicated commission comprised of the Company’s health and Severity rate in 2014–2017** Number of employees who completed OHS training in 2017 safety officers, trade union representatives, injured persons’ attorneys, and other subsidiary employees. The commissions identified direct and indirect causes of the 59 Type of training Number of employees accidents and developed respective pre- 51 53 vention measures. All employees guilty of OHS training 7,327 violations were held liable and account- First aid training 6,066 able for their actions. Accident records are 29 submitted to the government statistical OHS training and certification 3,189 services annually.

2014 2015 2016 2017

* Lost day rate (LDR) was not applied. Absentee rate was not applied. ** The severity rate is calculated as working hours lost divided by the number of accidents. SUSTAINABILITY REPORT 2017 Occupational health and safety 81

OG13 In 2017, the total headcount of fire and Inspections are regularly carried out to oil, oil product, and other hydrocarbon In 2017, the NOVATEK Group recorded emergency brigades serving the facili- at the subsidiary facilities to assess the spills. Materials and equipment available two fires, both of which occurred on vehi- ties on a 24-hour basis stood at 631 peo- emergency response capability of the to the emergency response and rescue cles. The two fires are not related to the ple. Thirty-two engineers of the Company Company’s subdivisions and personnel, teams comply with all existing require- core operations of the subsidiaries and directly monitored and supervised the fire and evaluate the resources of in-house ments. The Company ensures timely had no significant effect on the Compa- safety and emergency response environ- and external professional emergency re-equipment of both basic and special- ny’s sustainable development. Based on ment at our facilities. response and rescue teams. In 2017, we ized fire vehicle fleets. the fire investigation findings, the Compa- Fire safety, civil defence and emergen- made 17.7 thousand patrols and tested NOVATEK fully complies with fire safety ny took a number of ad hoc fire preven- cy response training, as well as fire and 520 external water supply sources used regulations: all of its facilities are equipped tion measures to ensure fire safety on its emergency drills, are an important ele- for firefighting. The Company’s facilities with automatic fire detection, alarm and transport. ment of the overall safety system. In 2017, implement a full-scale program to respond extinguishing systems. the Company organized 46,397 fire safety briefings that featured guidance materials and visual aids, as well as hands-on pre- Details on the 2017 fire accidents sentations. Basic fire safety training was provided to 5,320 people, with 767 evac- uation drills held. In the reporting year, the Date of fire Facility Description Consequences emergency response and rescue teams performed 15,365 safety control procedures as regards high-hazard operations, 09/03/2017 NORTGAS A vehicle (man haul truck with the Kamaz-54535B chassis) with No injuries. passengers went into flames en route and got destroyed. The including those related to fire and gas haz- fire was caused by electrical malfunction (short circuit) in the under hood space. Financial damage amounted to ards, at production facilities. As part of the RR 132,000. training, they also arranged 675 fire tacti- The cause of the incident was unrelated to NORTGAS’s operations. cal exercises. The emergency response and rescue teams are made up of 560 certified rescue workers. 17/03/2017 YARGEO A Vityaz all-terrain vehicle that was moving along a pipeline No injuries. from a booster station to a meter station caught fire and got destroyed. The fire originated from a fuel leak in the engine bay from a damaged fuel line, whose integrity had been Financial damage amounted to compromised due to an assembly defect at the manufacturing RR 26,858,056 and was covered plant. by an insurance company. The cause of the incident was unrelated to YARGEO’s operations. SUSTAINABILITY REPORT 2017

ENVIRONMENTAL PERFORMANCE AND PROTECTION SUSTAINABILITY REPORT 2017 Environmental performance and protection 83 Environmental performance and protection

ENVIRONMENTAL VISION 102-11 102-12 The Company pays great care to pre- NOVATEK exercises reasonable care in shows that permafrost thaw risks are cur- 201-2 venting and reducing the environmental all of its operations. Based on its assess- rently minor. footprint of its facilities. Knowing that oil ment of environmental risks across the In order to prevent hazardous waste NOVATEK annually reports on and gas operations inevitably affect nature, entire production chain, the Company from negatively impacting the environ- greenhouse gas emissions NOVATEK also works to mitigate environ- takes preventive measures and incorpo- ment, the Company outfits its waste dis- and energy efficiency (Carbon mental harm. rates potential threats in the decision-mak- posal sites such as mud pits and solid Disclosure project, CDP) and The Company’s environmental protec- ing process. For example, global warming domestic and industrial waste landfills with use of water resources tion and safety initiatives include: risks are on NOVATEK’s agenda because screens, which effectively shield subsoil (Water Disclosure, CDP). • constant environmental monitoring and its core production assets are located in and groundwater from pollutants. process control; the sensitive subarctic climate of Russia’s The Company engages in extensive • effective management and gradual Far Northern permafrost region. cooperation with scientific and non-gov- reduction of pollution and waste; The Company’s engineers have ernmental environmental organizations • lower energy consumption and higher worked out special initiatives to use in field such as the World Wildlife Fund (WWF), OHSAS 18001. In 2017, NOVATEK success- efficiency; development projects so as to minimize Marine Mammal Council, and V. I. Ver- fully passed an IMS recertification audit, • rational use and protection of water thermal impact of the facilities on perma- nadskiy Non-Governmental Environmen- which did not reveal any non-complianc- resources, maintaining a water frost soils. For the purpose of preventing tal Fund. es. Seven out of ten (70%) of NOVATEK’s discharge system; potential negative effects and determining Its core subsidiaries use the Integrat- subsidiaries engaged in hydrocarbons • conservation of biodiversity across the the permafrost soil and temperature con- ed Management System for Environmen- production, transportation, and process- Company’s footprint; ditions, NOVATEK’s fields are subject to tal Protection, Occupational Health and ing are certified under ISO 14001 and • disturbed area reclamation; continuous cryological monitoring, which Safety (IMS) compliant with ISO 14001 and OHSAS 18001. • training and education for employees and contractors in matters of environmental protection and ecological safety.

2017 – Year of Ecology at NOVATEK

• Another stage of our Biodiversity Program completed The Program includes comprehensive monitoring of biodiversity across the regions of the Company’s operation and a broad range of measures to preserve flora and fauna. NOVATEK continuously works to replenish the aquatic species populations. Opened during the year, the Sob fish-breeding farm became the only facility in the Arctic engaged in reproduction of the rare and endangered whitefish. The Company also educates its employees and contractors on biodiversity preservation. • An exhibition of children’s drawings In 2017, NOVATEK raised awareness about the Year of Ecology in Russia by showcasing children’s drawings in Tarko-Sale. • Green Spring 2017 The Company’s employees took part in the Russian national environmental campaign Green Spring 2017. SUSTAINABILITY REPORT 2017 Environmental performance and protection 84

ENVIRONMENTAL MONITORING Annual environmental monitoring is a In general, in 2017 the studies showed key tool for environmental assessment predominantly unharmed conditions of Environmental protection: achievements at production sites, identification of chal- environmental components in the target lenges and timely adjustment of the envi- areas. At all areas outside the production ronmental policy. The Company runs its footprint, the environmental condition has • Program for Rational Use of • Enclosed flare system annual environmental monitoring pro- been classified as stable and correspond- Associated Petroleum Gas (APG) The Ust-Luga Fractionation and gram across its production footprint. The ing to the baseline level. The Company systematically works to Transshipment Complex is equipped monitoring is carried out by independent In 2017, the NOVATEK Group spent decrease its pollutant emissions from with an enclosed flare system that environmental auditors (hiring qualified around RR 90 mln to arrange and run envi- APG flaring. In 2017, the Program for enables smokeless combustion of experts) as per applicable programs and ronmental monitoring in its license areas. Rational Use of Associated Petroleum hard-to-burn gaseous and liquid methodologies. To reduce the negative impact on the Gas enabled the Group to reach a waste. The system makes it possible It involves examining the condition environment, a multistage system of Envi- 96.9% APG utilization rate. to remove over 99.9% of combustion of environment components, taking soil, ronmental Monitoring and Industrial Con- • Greenhouse gas emissions by-products and liquid waste, which ground, water and seabed sediment sam- trol (EMIC) operates at the Company’s management system is a best-in-class result when it comes ples, checking the condition of the local enterprises. Every major production entity In order to align itself with the Cli- to reducing sulphur oxide (SOx), nitro- flora, animals and microorganisms, and of NOVATEK has a chemical laboratory ful- mate Doctrine of the Russian Feder- gen oxide (NOx) and other fugitive estimating air pollution. The condition of ly equipped for prompt operational anal- ation, NOVATEK has come up with a carcinogenic emissions. fish population and nutritive base are stud- ysis. The EMIC feeds data to analyse and corporate GHG emissions manage- • Use of renewable energy sources ied in water areas, with hydrological and streamline our core processes. ment system, compiled an inventory Renewable energy sources are used hydro-chemical properties analysed as of GHG emission sources and devel- in pipeline linear telemechanics sys- well. Samples are studied in certified lab- oped a greenhouse gas emission tems, which reduce indirect emis- oratories to assess the condition of envi- estimation module. The Company’s sions during power generation. ronmental components and their annual GHG emissions management sys- • Development of the filling station changes. tem won the National Environmental network and transition to gas The monitoring also involves visual Award named after Vladimir Vernads- engine fuel inspection and photographing of the areas kiy in the nomination “Science for The Company does its part to pro- along the cross-country vehicle and walk- Ecology”. mote the use of natural gas as an ing routes. To run the environmental moni- • Cogeneration technology at gas engine fuel, gas being a greener toring in the tundra zone, we use transport turbine power plants fuel option that enables more than with low-pressure tires to preserve the ТNearly all of the NOVATEK Group’s a threefold reduction in emissions. fragile topsoil. facilities use cogeneration technology, which ensures fuel efficiency at 85–90% and thus reduces the amount of combustion products and in particular GHG emissions. SUSTAINABILITY REPORT 2017 Environmental performance and protection 85

ENVIRONMENTAL PROTECTION – GOVERNMENT CONTROL EMISSIONS AND WASTE 305-1 In 2017, the Federal Service for Super- Atmospheric emissions vision of Natural Resources (Rosprirod- The level of atmospheric emissions nadzor), local branches of the Federal decreased as compared to the previous Agency for Fishery, municipal authorities reporting period and reached 108,936 The NOVATEK’s GHG emissions management system won and the Public Prosecution Office held tons. This was achieved through the the 2017 National Environmental Award named after Vladimir scheduled and ad hoc audits at major pro- implementation of the APG Utilization Pro- Vernadskiy in the nomination “Science for Ecology”. duction entities of NOVATEK with respect gram (commissioning of the supersonic to environment protection and sustainable separation (3S) unit) at the Yarudeyskoye management of natural resources. Follow- oil field. ing the audits, measures were taken to eliminate the deficiences identified. Greenhouse gas and energy efficiency NOVATEK recognizes risks and impli- In 2017, the Company developed and approved by Order No. 300 of the Rus- cations of climate changes, regularly adopted a corporate GHG emissions sian Ministry of Natural Resources and assessing them, maintaining cryological management system to comply with the Environment dated 30 June 2015. monitoring, developing the reporting sys- requirements of ISO 14064-1:2007 and As part of the system, NOVATEK devel- tem on GHG emissions and implement- Russian Government Resolution No. 504- oped a corporate standard that establish- ing innovative technology for reducing R dated 02 April 2014, as well as the es the main principles and requirements pollution. Guidelines for Calculating GHG Emissions for managing GHG emissions in the near term. Since 2008, NOVATEK has been sup- Atmospheric emissions by the NOVATEK Group in 2014–2017, tons porting the Carbon Disclosure Project (CDP) to collect relevant data from large 2014 2015 2016 2017 businesses. Currently, NOVATEK facilities are Air pollutant emissions, total 51,479 66,242 121,232 108,936 actively implementing the cogeneration incl. priority pollutants: technology, which almost doubles the fuel

solids 2,353 3,609 2,568 7,682 efficiency resulting in a significant reduction of GHG emissions. carbon oxide 32,858 44,466 86,022 68,668 Linear telemechanic systems for con- nitrogen oxide (NO2 equivalent) 6,663 8,225 10,448 11,097 trolling pipeline valves are outfitted with solar panels and wind turbines that allow sulphur dioxide 6.74 82.77 20.14 29.76 the Company to leverage alternative hydrocarbons (incl. methane) 2,900 4,872 8,993 8,490 energy sources. There are 128 linear tele-

VOCs 6,685 8,950 10,219 12,951 mechanic units, and the maximum capacity of the solar panels and wind turbines is Other - - 2,962 17.8 1.5 kW and 1 kW, respectively. SUSTAINABILITY REPORT 2017 Environmental performance and protection 86

OG3 OG6 In 2017, approximately 300,000 kWh Associated petroleum gas Waste The Company takes a responsible (0.1% of the total 324,220 MWh) was gen- In 2017, NOVATEK was able to signifi- In 2017, the NOVATEK Group’s pro- approach to waste disposal by sticking erated from renewable energy sources. cantly cut air emissions from flared asso- duction generated 46,942 tons of waste, to approved instructions and the gener- Compared to the previous year, GHG ciated petroleum gas (APG). Across the which is 5% less than in 2016. The bulk ally accepted safety practices, as well as emissions in 2017 decreased to 4.8 mmt NOVATEK Group, the level of APG utiliza- of that waste (96%) was low-hazardous exercising environmental control in the

of CO2 equivalent (the calculation includes tion in the reporting year stood at 96.9%, and practically non-hazardous (mainly drill process of waste treatment. A little over

CO2 and СН4). which was achieved through well-planned mud). a third of the total waste is transferred to Development and production assets implementation of the Program for Ratio- The share of high-hazardous waste specialist contractors for disposal, 40%

generated** 0.0087 CO2e/boe of GHG nal Use of Associated Petroleum. materials (classes I and II) was insignificant is disposed via landfill, and a fifth of the emissions, processing assets – 0.0048 and comprised hundredths of a percent, waste material used by the Company.

CO2e/boe. found mainly in mercury lamps and lumi- NOVATEK employs state-of-the-art waste nescent tubes containing mercury. recycling and neutralization technologies.

Total greenhouse gas emissions in 2013–2017, thousand tons of CO2

2013 2014 2015 2016 2017

Direct emissions (fuel combustion and operation of 2,576.1 3,980.0 4,402.6 6,571.8* 4,849.3* production entities)

Indirect emissions (purchased energy) 90.4 115.6 184.5 181.9 191.5 Spotlight on Yamal LNG

In 2017, in order to meet its environmental protection and social responsibility roadmap goals, Yamal LNG developed and approved with an independent sustainability consultant a plan to manage GHG emissions and energy efficiency. The Yamal LNG project provides for the use of an innovative technology of methane-containing emissions recovery. After liquefaction, LNG products emit methane fumes (boil-off gas). For boil-off gas recovery, a tank fumes removal system is used. The boil-off gas can then be re-liquefied or used as a fuel gas for internal consumption.

* According to the Guidelines for Calculating GHG Emissions approved by Order No. 300 of the Russian Ministry of Natural Resources and Environment dated 30 June 2015. ** GHG emissions per barrel of oil equivalent. SUSTAINABILITY REPORT 2017 Environmental performance and protection 87

WATER USE AND DISPOSAL 306-2 Production and consumption Waste structure by Waste management The Company is committed to sustain- OG7 waste generation in 2013–2017, environmental impact in 2017, % in 2017, % thousand tons per annum able water use and efficient wastewater treatment. NOVATEK does not operate in water-scarce areas*, but it does consider the sparse use of water resources among the priorities of its environmental protection policy. 49.5 46.9 In 2017, water consumption remained flat year-on-year at 2,779 thousand cubic 42.1 40.6 meters, which included 1,931 thousand cubic meters for production needs, 812 thousand cubic meters for general and drinking needs, and 36 thousand cubic meters for other needs (transferred to other organizations). In 2017, the water consumption rate stood at 3.9 cubic meters per thousand 17.5 boe of gross production for production 91% Class IV – low-hazardous 40% Placed at in-house storage entities and at 1.2 cubic meters per thou- waste facilities sand boe of finished products for process- 38% Transferred to specialist 4% Classes I, II, III – extremely/ contractors ing entities. highly/moderately hazardous The Company uses the following waste 20% Used by the Company wastewater disposal methods: 5% Class V – virtually non-haz- 2% Neutralised reinjection for maintaining reservoir ardous wasteнеопасные • 2013 2014 2015 2016 2017 pressure; • burning at horizontal gas flaring systems; • injection into intake beds after preliminary purification at full-service treatment plants; • channelling to surface water bodies after thorough treatment.

* The International Water Management Institute describes Russia as a “sodden” region abundant in water resources. SUSTAINABILITY REPORT 2017 Environmental performance and protection 88

303-1 306-1 The wastewater channelled into the Analysis of samples shows that One of the ways that the Compa- Authorized state regulators examine Gulf of Ob in the Kara Sea and the Luga hydro-chemical parameters of discharged ny uses to mitigate its negative impact NOVATEK’s water intake and discharge Bay in the Gulf of Finland qualifies as water and concentrations of pollutants fall on water resources and to reduce nat- volumes no more than once every three treated to standard quality. The Compa- within permissible limits. ural water consumption is re-injecting years. The checks are based on Russian ny makes use of mechanical, membrane, The Company’s subsidiaries operating produced water to maintain formation Federation’s laws, rules and regulations and biological treatment technologies, as pipelines conduct regular hydrological, pressure. governing water body protection. well as UV disinfection. hydro-chemical and organoleptic exam- inations to assess the quality of water resources.

Water consumption in 2013–2017, Water intake by source type Water disposal structure thousand cubic meters in 2017, % in 2017, %

2,748 2,779 2,779 2,538 thousand cubic thousand cubic meters meters

1,716

1,425 1,347

69% Ground water 43% Reservoir pressure maintenance 31% Surface water 23% Surface water 20% Gas flaring systems <1% Municipal and other water sources 13% Underground horizons 1% Storage <1% Transferred to other organizations 2013 2014 2015 2016 2017 SUSTAINABILITY REPORT 2017 Environmental performance and protection 89

ENERGY CONSUMPTION AND EFFICIENCY 302-1 302-3 NOVATEK cares about future gener- nally generated heat and electricity come The Company regularly implements 302-4 ations and therefore exercises a reason- from own-produced hydrocarbons. Also, various energy-saving and efficiency ini- able and responsible approach to energy part of electricity was produced from the tiatives, which in 2017 enabled the over- consumption and efficiency. renewable sources of energy (solar panels all reduction of energy consumption by The Company’s major heat sources and wind power generation). NOVATEK 26,698 GJ. The highlight of the ener- are waste heat boilers and heat exchang- operates a total of 128 solar panel and gy-saving measures was a 7,416 MWh ers at cogeneration power plants and at wind generator sets installed as part of reduction in power consumption. booster compression stations. The inter- the automatic control and communication system.

Energy consumption by NOVATEK’s production subsidiaries and joint Energy consumption by process, 2017 ventures in 2014–2017*

Metric UoM 2014 2015 2016 2017 Process Consumption

Total consumption of heat and 2.5 kWh / thousand cubic thousand GJ 3,060 3,864 4,200 4,215 Gas production electricity meters

Consumption from non-renewable Condensate production 12.4 kWh / ton sources (natural gas) to produce thousand GJ 4,332 6,614 7,485 5,877 heat and electricity Oil production 24 kWh / ton

Aggregate electricity consumption million kWh 449 588 658 675 Condensate processing 7.1 kWh / ton

Aggregate heat consumption thousand GJ 1,442 1,746 1,830 1,782

* Energy consumption for 2017 includes the following companies: LLC NOVATEK-Yurkharovneftegas, LLC NOVATEK- Tarkosaleneftegas, LLC NOVATEK-Purovsky ZPK, LLC NOVATEK – Ust-Luga, LLC NOVATEK-Transervice, JSC ARCTICGAS, CJSC Northgas, LLC YARGEO, JSC Terneftegas. SUSTAINABILITY REPORT 2017 Environmental performance and protection 90

BIODIVERSITY PRESERVATION 304-1 304-2 NOVATEK does not operate within pro- communities. A special study done on pol- OG4 tected areas and areas of high biodiversity emonium boreale (a rare plant listed on In order to monitor maritime mammals, NOVATEK value, so it has no negative impact on bio- YNAO’s Red Data Book) yielded new eco- entered into an agreement with Marine Mammal diversity in these areas. logical data on the species and its habi- Research and Expedition Center. Where the Company does have its pro- tat within the South-Tambeyskoye license duction facilities, it monitors biodiversity area, which were used to arrange protec- and ensures its preservation through cor- tion measures for the plant. rective and preventative measures. Ornithological monitoring covers all ed the catch of summer 2017 (87.5% of all route to accommodate high displace- For example, the Company has a com- aspects of bird life in the license area. The animals caught). Siberian brown lemming ment ships. In light of this, the project may prehensive biodiversity monitoring system research aimed to describe bird popula- accounted for 8.9%, tundra shrews – for have a negative effect on marine mam- in place to protect the terrestrial ecosys- tions and their density on territories with 3.6%. The Company studies changes in mals and their key habitats both in the Gulf tems of the South-Tambeyskoye license varying anthropogenic pressure, as well as small mammal populations in natural and of Ob and along ship routes. Across the area. Biodiversity risks are registered and study bird distribution and its changes due transformed habitats. It monitors the Arc- prospective footprint, there dwell several assessed in accordance with the biodiver- to human impact while also looking for tic fox population based on the number of species of marine mammals: ringed seals, sity monitoring program, which was devel- rare species. The anthropogenic impact holes dug by the animal. bearded seals, white whales, Atlantic wal- oped under a framework action plan for on birds in the vicinity of the field is nil or The main methods of monitoring water ruses and polar bears. The Company is biodiversity preservation. negligible, mainly owing to the absence of ecosystems are hydrometric measure- conducting studies in the vicinity of the At its plant monitoring sites, the Com- direct human impact such as hunting, egg ments, assessment of hydro-chemical Yamal peninsula and in the Gulf of Ob to pany conducts standard geobotanical collection, nest removal, etc. parameters, and bioindicators (hydrobiolo- obtain up-to-date information on marine exploration to describe the plant com- The number of small mammals inhab- gy assessments) based on observations of mammals in the area of the project. munity strata. The general state and the iting tundra ecosystems changes every overall aquatic organism communities and In order to monitor maritime mammals, degree of anthropogenic transforma- year. Peak rodent populations are fol- changes in individual species populations. NOVATEK entered into an agreement tion of flora were measured based on lowed by deep dips in their size, some- In 2017, comprehensive biodiversity with Marine Mammal Research and Expe- the cover percentage of the herbaceous times differing by one or even two orders monitoring yielded up-to-date and reliable dition Center. In 2017, special tools were and moss layers, floristical description of of magnitude. While these cycles are information on the plant and animal life deployed to carry out air measurements of plant communities, indicator plant species, understudied, observations suggest they (including rare species) in the South-Tam- the northern part of the Gulf of Ob and the rare species and their population status, last about three or four years. Microtus beyskoye license area, as well as data on adjacent stretch of the Kara Sea in order non-native species and their share in local gregalis was the species that dominat- the biodiversity status and recovery pro- to obtain data on seal distribution and cesses taking place in habitats of terres- population in the icy habitats during the trial fauna species, water organisms and spring season. The study spanned over plant communities in disturbed areas cou- 15,000 sq km. The equipment was carried pled with an analysis of their sustainability. by a Mi-8MTV helicopter and included The Yamal LNG project provides for infrared imaging and photography tools, Company has a comprehensive biodiversity monitoring active transportation and handling opera- visual monitoring and navigation instru- system in place to protect the terrestrial ecosystems of tions in the Gulf of Ob’s waters. Together ments, and an information-calculating sys- the South-Tambeyskoye license area. with FSUE Rosmorport, NOVATEK under- tem. The air study identified mostly ringed takes dredging works on the navigation seals, with some visual data also indicat- SUSTAINABILITY REPORT 2017 Environmental performance and protection 91

304-3 413-1 ing the presence of bearded seals in the ous fat samples were examined to iden- covered area (south of Sabetta). There tify any persistent organic pollutants or were more than 21,000 seals in the stud- n-alkanes*. All of the pollutant types were Sob fish-breeding farm ied area, and the observed density was found to be present in studied samples, between 0.47 and 10.73 animals per 1 sq meaning they were part of the Ob River Is the only facility in the Arctic region engaged in reproduction km. The analysis of the data identified dif- ecosystem’s background pollution in the of the rare and endangered whitefish (muksun, broad whitefish). ferences in seal distribution based on the area under study. According to the results Its main goal is to replenish endangered fish populations and to type of ice, with various ice types driving of a molecular genetic analysis, there is develop a best-in-class technology for that purpose. The farm seal distribution in the area in May 2017. no pronounced genetic isolation among currently implements a modified version of a Norwegian approach, The 2017 air study produced useful data, the Gulf of Ob ringed seals. Although data which has never been used in Russia. The facility grows whitefish and in the future this method may be used collection is still in progress, it is fair to fingerlings with a high survival rate in units with recirculating by the Company to monitor icy seal habi- assume that the high level of diversity and aquaculture systems all year round, while similar farms only breed tats throughout its footprint. low isolation are proof enough of the pop- fish in natural shallow water conditions during spring and summer. The reporting year also saw the Com- ulation’s rather good health. pany arrange stationary monitoring of NOVATEK educates its employees and marine mammals caught near the Seyakha contractors on biodiversity preservation village, with toxicity and molecular genetic measures. Dogs, fishing, hunting and wild studies done on biological samples from a plant collection are prohibited within the In Sabetta, the experts of Marine Environmental damage ringed seal. The latter serves as the prima- South-Tambeyskoye license area. Con- Mammal Research and Expedition Cen- compensation ry indicator species for assessing the state tractors are notified of these restrictions ter held a workshop for the Company’s In 2017, by way of compensating of the Gulf of Ob territories assigned to through contractual clauses, guidance employees and contractors dedicated for damages to aquatic bioresources, the Company, with white whale coming in and induction briefings; the Company also to personal safety rules in the event of NOVATEK released 85 thousand salmon as a close second. The accumulated data monitors compliance with the approved encountering a polar bear. The workshop fingerlings into the North-West basin (the on maritime mammals will determine the bans, explains the rationale behind them taught attendees how to stay safe when NOVATEK-Murmansk project). The fin- methods, monitoring parameters and lim- to employees, and enforces strict policies meeting the Arctic predator and meth- gerlings were grown at two fish-breeding its that will be used to assess Yamal LNG’s prohibiting hunting or fishing equipment at ods to deter a polar bear. The Yamal LNG farms in the Republic of Karelia. environmental impact. checkpoints. employees and workers of the key con- During the reporting year, the Com- In the reporting year, the Company ana- In addition, employee guidelines on tractors, who will then pass the informa- pany released 14.2 million peleds, 2.9 lysed the composition and concentration biodiversity are regularly updated: tion on to the personnel working on the million muksuns and 40 thousand broad of anthropogenic pollutants in ringed seal • safety rules for a polar bear encounter; project’s site, attended the event. whitefishes into the rivers of the Ob-Irtysh tissues, continuing to gather information • white foxes as potential rabies carriers; basin. to monitor the risks of anthropogenic envi- • correct interaction with marine NOVATEK also supported the Sob ronmental pollution that differs from the mammals. fish-breeding farm, which is a key initiative existing background pollution. Subcutane- of aquatic biodiversity preservation.

* Oil components (hydrocarbons). SUSTAINABILITY REPORT 2017 Environmental performance and protection 92

ENVIRONMENTAL PROTECTION DISTURBED AREA RECLAMATION TRAINING 304-3 In 2017, NOVATEK remediated a total out production and consumption waste The Company organizes ongoing of 329 hectares of lands within its license (metal scrap, timber, cement rock, etc.): training on matters of sustainable use of areas and transferred 375 hectares of • on the Yurkharovskoye oil and gas resources and environmental safety, which remediated and idle lands to the major condensate field in the Tazov Gulf also includes production safety. In 2017, land user. water protection zone near well R-120 128 people attended environmental train- During the reporting year, the Company (2.5 hectares); ings on various topics (depending on their worked to remedy the accumulated envi- • on the Yurkharovskoye oil and gas line of work). ronmental damage that was left behind condensate field near well R-92 from the development activities by the (2 hectares); previous subsoil users. NOVATEK cleaned • in the Novy Urengoy Municipality near the airport (1 hectare).

Number of people trained in environmental management in 2013–2017

Subjects 2013 2014 2015 2016 2017

Environmental safety for managers and general 12 20 8 17 17 business management personnel

Environmental safety and hazardous waste 6 28 50 35 40 treatment

Environmental safety for managers and experts of environmental departments and environment 3 10 14 28 14 control systems

Professional training of persons entitled to 24 36 88 110 57 work with class I–IV hazardous waste

Other environmental programs 6 13 0 11 0

Total 51 107 160 201 128 SUSTAINABILITY REPORT 2017 Environmental performance and protection 93

ENVIRONMENTAL COSTS NOVATEK Group’s 2017 costs associated with the core environmental and In 2017, NOVATEK spent over RR 2 bln sustainable resource use initiatives, RR thousand on environmental protection and damage compensation, with environmental impact fees accounting for less than 1% of Atmospheric air protection and climate change prevention 19,112 all costs. The better part of environmental investments was allocated to water protection initiatives (63%). Water protection 1,294,079

Environment protection from production and consumer waste 280,815 Charges for negative environmental impact in 2013‑2017, RR mln Land protection 100,860

30.5 Subsoil protection 26,947

Protection of flora, fauna and habitats, biodiversity preservation 118,798 25.1

Environmental management 9,166

19.4 19.3 Monitoring and environmental impact assessment 89,446 17.0

Environmental impact fees 16,952

Sustainable use of natural resources 91,359

Other costs 18,847

Total: 2,066,381

2013 2014 2015 2016 2017 SUSTAINABILITY REPORT 2017 Appendix 1. Personnel structure 94 Appendix 1. Personnel structure

405-1 Personnel structure by gender and age, as at 31 December 2017

Female % Male % Total %

Under 30 507 17 1,323 14 1,830 15

30 to 50 2,167 71 6,404 70 8,571 70

50+ 366 12 1,469 16 1,835 15

Total 3,040 9,196 12,236

Personnel structure by line of work and gender, as at 31 December 2017

Total % of total Female Male Female, % Male, % headcount headcount Exploration and production 6,939 57% 1,294 5,645 19% 81%

Transportation and 2,372 19% 1,069 1,303 45% 55% marketing

Processing 1,363 11% 237 1,126 17% 83%

Administrative personnel 841 7% 343 498 41% 59%

Power supply 583 5% 47 536 8% 92%

Auxiliary production 138 1% 50 88 36% 64%

Total 12,236 3,040 9,196 SUSTAINABILITY REPORT 2017 Appendix 1. Personnel structure 95

102-8 Personnel structure by gender and region, Personnel structure by type of employment contract and region, as at 31 December 2017 as at 31 December 2017

Region Female Male Total Region Fixed-term, Open-term, employees employees

Yamal-Nenets Autonomous Region 1,094 6,822 7,916 Yamal-Nenets Autonomous Region 544 7,372

Moscow and Moscow Region 695 910 1,605 Moscow and Moscow Region 358 1,247

St Petersburg and Leningrad Region 157 475 632 St Petersburg and Leningrad Region 30 602

Volgograd Region 86 95 181 Volgograd Region 6 175

Astrakhan Region 8 10 18 Astrakhan Region 0 18

Kostroma Region 109 83 192 Kostroma Region 23 169

Perm Territory 12 9 21 Perm Territory 4 17

Tyumen Region 81 151 232 Tyumen Region 15 217

Samara Region 0 3 3 Samara Region 0 3

Arkhangelsk Region 0 3 3 Arkhangelsk Region 1 2

Chelyabinsk Region 613 341 954 Chelyabinsk Region 81 873

Rostov Region 82 126 208 Rostov Region 12 196

Murmansk Region 50 87 137 Murmansk Region 53 84

Montenegro 2 1 3 Montenegro 3 0

Cyprus 3 0 3 Cyprus 3 0

Singapore 6 5 11 Singapore 1 10

Poland 25 53 78 Poland 24 54

Switzerland 17 22 39 Switzerland 8 31

Total 3,040 9,196 12,236 Total 1,166 11,070 SUSTAINABILITY REPORT 2017 Appendix 1. Personnel structure 96

102-8 Personnel structure by type of employment contract and gender, Personnel hired in 2017 by gender and age 401-1 as at 31 December 2017

Fixed-term Open-term Age Female Male Total

Female 439 2,601 Under 30 112 337 449

Male 727 8,469 30 to 50 258 731 989

Total 1,166 11,070 50+ 16 88 104

Total 386 1,156 1,542

Personnel by type of employment and gender, as at 31 December 2017 Personnel hired in 2017 by gender and region

Part-time Full-time Region Female Male Total, employees

Female 40 3,000 Yamal-Nenets Autonomous Region 109 743 852

Moscow and Moscow Region 95 154 249 Male 8 9,188 St Petersburg and Leningrad 31 54 85 Region Total 48 12,188 Volgograd Region 13 24 37

Kostroma Region 6 6 12

Tyumen Region 6 25 31

Samara Region 0 1 1

Chelyabinsk Region 71 64 135

Rostov Region 19 22 41

Murmansk Region 23 43 66

Montenegro 1 0 1

Singapore 2 1 3

Poland 7 13 20

Switzerland 3 6 9

Total 386 1,156 1,542 SUSTAINABILITY REPORT 2017 Appendix 1. Personnel structure 97

401-1 Employee turnover in 2017 by gender and region Employees who went on or returned from a parental leave in 2017 401-3 405-1 Gender/Region Average Resignations Employee turnover Employees Employees who went on Employees who returned headcount rate* parental leave in 2017 from parental leave in 2017 Female 2,702.1 228 0.08

Male 8,958 518 0.06 Female 131 83

Total 11,660.1 746 0.06 Male 2 4 Yamal-Nenets Autonomous 7,587.7 370 0.05 Total 133 87 Region Moscow and Moscow Region 1,572.1 116 0.07 St Petersburg and Leningrad 575.9 17 0.03 Region Volgograd Region 174 35 0.2

Astrakhan Region 18 2 0.11 Management breakdown by gender and age as at 31 December 2017

Kostroma Region 182 9 0.05

Perm Territory 18 0 0 Top managers Females % Males % Total %

Tyumen Region 226 10 0.04 Under 30 0 1 1 1 Samara Region 2.9 0 0

Arkhangelsk Region 3.4 0 0 30 to 50 30 109 139 75

Chelyabinsk Region 880 123 0.14 50+ 6 39 45 24 Rostov Region 203 47 0.23

Murmansk Region 102.3 11 0.11 Total 36 19 149 81 185 100 Montenegro 1.4 0 0

Cyprus 3 0 0

Singapore 8.7 1 0.11

Poland 65.6 3 0.05

Switzerland 36.1 2 0.06 Total 11,660.1 746 0.06

* The employee turnover rate is calculated as resignations divided by average headcount at the year-end. Percentage is calculated as the resulting value multiplied by 100. SUSTAINABILITY REPORT 2017 Appendix 2. Compliance with gri standards 98 Appendix 2. Compliance with GRI standards

102-55 Indicator Indicator Section of the Report Notes index

GENERAL STANDARD DISCLOSURES

1. Organizational profile

102–1 Name of the organization Company profile, p. 7

The Company does not produce goods or provide services 102–2 Activities, brands, products, and services Company’s results, p. 10 prohibited in any market

102–3 Location of headquarters Company profile, p. 46, 49-50

102–4 Location of operations Company profile, p. 10

102–5 Ownership and legal form Company profile, p. 10

102–6 Markets served Company’s results, p. 10

Employment practices, p. 65 102–7 Scale of the organization Company profile, p. 11-12 Company’s results, p. 52-53

d. Workers who are not employees do not perform a Employment practices, p. 65 102–8 Information on employees and other workers significant portion of the Company’s activities. Personnel Structure appendix, p. 94-97 e. There are no seasonal or other variations.

102–9 Supply chain Procurement practices, p. 75-76

102–10 Significant changes to the organization and its supply chain Company profile, p. 11

Environmental performance and protection, 102–11 Precautionary principle or approach p. 83

Environmental performance and protection, 102–12 External initiatives p. 83

102–13 Membership of associations Company profile, p. 13

2. Strategy

102–14 Statement from senior decision-maker Letter, p. 3-4

For detailed information about key risks, please see the 102–15 Key impacts, risks, and opportunities Corporate governance, p. 37 Annual Report 2017, pp. 69-75. SUSTAINABILITY REPORT 2017 Appendix 2. Compliance with gri standards 99

Indicator Indicator Section of the Report Notes index

3. Ethics and integrity

102–16 Values, principles, standards, and norms of behavior Ethics, p. 40

102–17 Mechanisms for advice and concerns about ethics Ethics, p. 40

4. Governance

102–18 Governance structure Corporate governance, p. 30-31, 33

102–19 Delegating authority Corporate governance, p. 34

Executive-level responsibility for economic, environmental, and 102–20 Corporate governance, p. 34 social topics

Consulting stakeholders on economic, environmental, and social 102–21 Corporate governance, p. 31 topics

102–22 Composition of the highest governance body and its committees Corporate governance, p. 32

102–23 Chair of the highest governance body Corporate governance, p. 31

102–24 Nominating and selecting the highest governance body Corporate governance, p. 31

102–25 Conflicts of interest Ethics, p. 41

Role of highest governance body in setting purpose, values, 102–26 Corporate governance, p. 31 and strategy

102–27 Collective knowledge of the highest governance body Corporate governance, p. 31

102–28 Evaluating the highest governance body’s performance Corporate governance, p. 32

Identifying and managing economic, environmental, and social 102–29 Corporate governance, p. 33, 37 impacts

102–30 Effectiveness of risk management processes Corporate governance, p. 37

102–31 Review of economic, environmental, and social topics Corporate governance, p. 34, 37

102–32 Highest governance body's role in sustainability reporting Report and reporting process, p. 7

102–33 Communicating critical concerns Corporate governance, p. 32-33

102–34 Nature and total number of critical concerns Corporate governance, p. 33

102–35 Remuneration policies Corporate governance, p. 35-36

The Company does not engage consultants on remuneration 102–36 Process for determining remuneration Corporate governance, p. 35-36 matters, which fall within the remit of the Remuneration and Nomination Committee made up of independent directors. SUSTAINABILITY REPORT 2017 Appendix 2. Compliance with gri standards 100

Indicator Indicator Section of the Report Notes index

5. Stakeholder engagement

102–40 List of stakeholder groups Stakeholder engagement, p. 21

Collective bargaining agreements cover 97% of the 102–41 Collective bargaining agreements Company’s employees.

102–42 Identifying and selecting stakeholders Stakeholder engagement, p. 21

Stakeholder engagement, p. 21 102–43 Approach to stakeholder engagement Report and reporting process, p. 7

Report and reporting process, p. 7 102–44 Key topics and concerns raised Stakeholder engagement, p. 22-28

6. Reporting practice

Company profile, p. 11 102–45 Entities included in the consolidated financial statements Report and reporting process, p. 7

102–46 Defining report content and topic boundaries Report and reporting process, p. 6-7

102–47 List of material topics Report and reporting process, p. 8 In the Company’s Results section, natural gas production and reserves include the volumes consumed in the oil and gas 102–48 Restatements of information production and development activities, which were previously excluded. 102–49 Changes in reporting Report and reporting process, p. 7

102–50 Reporting period Report and reporting process, p. 7

102–51 Date of most recent report Report and reporting process, p. 7

102–52 Reporting cycle Report and reporting process, p. 7

102–53 Contact point for questions regarding the report Investor Relations: [email protected]

102–54 Claims of reporting in accordance with the GRI Standards Report and reporting process, p. 7

102–55 GRI content index Compliance with GRI Standards, p. 98-110

The Company does not seek external assurance, with the 102–56 External assurance Report internally audited by highly skilled specialists. SUSTAINABILITY REPORT 2017 Appendix 2. Compliance with gri standards 101

Indicator Indicator Section of the Report Notes index

SPECIFIC STANDARD DISCLOSURES

Category: Economic

201 Economic performance

103 Management Approach

103-1 Explanation of the material topic and its Boundary Report and reporting process, p. 7

103-2 The management approach and its components Ensuring strong economic performance, p. 43

103-3 Evaluation of the management approach Ensuring strong economic performance, p. 43

201–1 Direct economic value generated and distributed Ensuring strong economic performance, p. 44

Financial implications and other risks and opportunities due to Environmental performance and protection, 201–2 climate change p. 83

201–3 Defined benefit plan obligations and other retirement plans Employment practices, p. 72

202 Market presence

103 Management Approach

103-1 Explanation of the material topic and its Boundary Report and reporting process, p. 7

103-2 The management approach and its components Employment practices, p. 65

103-3 Evaluation of the management approach Employment practices, p. 65 Ratios of standard entry level wage by gender compared to local 202–1 Employment practices, p. 67 b. Insignificant proportion minimum wage 203 Indirect economic impacts

103 Management Approach

103-1 Explanation of the material topic and its Boundary Report and reporting process, p. 7

103-2 The management approach and its components External social policy, p. 57

103-3 Evaluation of the management approach External social policy, p. 57

203–1 Infrastructure investments and services supported External social policy, p. 57-61

203–2 Significant indirect economic impacts External social policy, p. 58-60

204 Procurement practices

103 Management Approach

103-1 Explanation of the material topic and its Boundary Report and reporting process, p. 7 SUSTAINABILITY REPORT 2017 Appendix 2. Compliance with gri standards 102

Indicator Indicator Section of the Report Notes index

103-2 The management approach and its components Procurement practices, p. 75-76

103-3 Evaluation of the management approach Procurement practices, p. 75-76

204–1 Proportion of spending on local suppliers Procurement practices, p. 76

205 Anti-corruption

103 Management Approach

103-1 Explanation of the material topic and its Boundary Report and reporting process, p. 7

103-2 The management approach and its components Ethics, p. 40

103-3 Evaluation of the management approach Ethics, p. 40

205–1 Operations assessed for risks related to corruption No operations were assessed for risks related to corruption.

100% of employees, governance body members and business partners are informed of the Company’s Anti-Corruption Communication and training about anti-corruption policies and 205–2 Ethics, p. 40 Policy, which is available to all stakeholders at the Company’s procedures website. Information on the document is also disclosed in sustainability reports.

The Company identified no cases of corruption in the 205–3 Confirmed incidents of corruption and actions taken reporting period.

Category: Environmental

302 Energy

103 Management Approach

103-1 Explanation of the material topic and its Boundary Report and reporting process, p. 7

Environmental performance and protection, 103-2 The management approach and its components p. 89

Environmental performance and protection, 103-3 Evaluation of the management approach p. 89

Environmental performance and protection, 302–1 Energy consumption within the organization p. 89

302–2 Energy consumption outside of the organization All energy is consumed within the NOVATEK Group.

Environmental performance and protection, 302–3 Energy intensity p. 89

Environmental performance and protection, 302–4 Reduction of energy consumption p. 89

302–5 Reductions in energy requirements of products and services The indicator is not applicable. SUSTAINABILITY REPORT 2017 Appendix 2. Compliance with gri standards 103

Indicator Indicator Section of the Report Notes index

303 Water

103 Management Approach

103-1 Explanation of the material topic and its Boundary Report and reporting process, p. 7

Environmental performance and protection, 103-2 The management approach and its components p. 87

Environmental performance and protection, 103-3 Evaluation of the management approach p. 87

Environmental performance and protection, 303–1 Water withdrawal by source p. 88

There are no water sources significantly affected by 303–2 Water sources significantly affected by withdrawal of water withdrawal of water.

304 Biodiversity

103 Management Approach

103-1 Explanation of the material topic and its Boundary Report and reporting process, p. 7

Environmental performance and protection, 103-2 The management approach and its components p. 90-91

Environmental performance and protection, 103-3 Evaluation of the management approach p. 90-91

Operational sites owned, leased, managed in, or adjacent to, Environmental performance and protection, 304–1 protected areas and areas of high biodiversity value outside p. 90 protected areas

Significant impacts of activities, products, and services on Environmental performance and protection, 304–2 biodiversity p. 90

Environmental performance and protection, 304–3 Habitats protected or restored p. 91-92

IUCN Red List species: – critically endangered – 0; – endangered – 0; IUCN Red List species and national conservation list species with – vulnerable (VU) – 4 (white bear, long-tailed duck, Steller’s 304–4 habitats in areas affected by operations eider, snowy owl); – near threatened – 1 (white whale); – least concern – 2 (white-tailed eagle, peregrine falcon); total species – 7. SUSTAINABILITY REPORT 2017 Appendix 2. Compliance with gri standards 104

Indicator Indicator Section of the Report Notes index

305 Emissions

103 Management Approach

103-1 Explanation of the material topic and its Boundary Report and reporting process, p. 7

Environmental performance and protection, 103-2 The management approach and its components p. 85

Environmental performance and protection, 103-3 Evaluation of the management approach p. 85

a. 4.8 mmt of CO2 equivalent.

b. CO2, CH4.

c. 201 tons of CO2 equivalent. d. The base year will be chosen based on the results of production activities in 2017-2018. Environmental performance and protection, 305–1 Direct (Scope 1) GHG emissions e. Guidelines approved by Order of the Russian Ministry of p. 85 Natural Resources and Environment No. 300 dated 30 June 2015. f. Operational control method. g. Guidelines approved by Order of the Russian Ministry of Natural Resources and Environment No. 300 dated 30 June 2015. a. Facilities located in YNAO (Ural Interconnected Power

System, Tyumen Region): 160,689 tons of CO2 equivalent. Facility in the Leningrad Region (North-West Interconnected

Power System): 30,825 tons of CO2 equivalent. b. 100% Russian market.

305–2 Energy indirect (Scope 2) GHG emissions c. CO2. e. Revised Guidelines for National Greenhouse Gas Inventories. IPCC, 1996. Module 1, Energy. f. Operational control method. g. Revised Guidelines for National Greenhouse Gas Inventories. IPCC, 1996. Module 1, Energy. Indirect emissions from the combustion or biodegradation of 305–3 Other indirect (Scope 3) GHG emissions biomass: 201 tons of СО2 equivalent.

a. 7.74 mmt СО2 equivalent / mboe. b. Barrels of oil equivalent. 305–4 GHG emissions intensity c. Direct (Scope 1) emissions.

d. CO2, CH4. SUSTAINABILITY REPORT 2017 Appendix 2. Compliance with gri standards 105

Indicator Indicator Section of the Report Notes index

a. 1.5 mmt of СО2 equivalent.

b. CO2, CH4. c. The base year will be chosen based on the results of production activities in 2017-2018. 305–5 Reduction of GHG emissions d. Reduction of direct (Scope 1) emissions: 1.5 mmt of СО2 equivalent. e. Guidelines approved by Order of the Russian Ministry of Natural Resources and Environment No. 300 dated 30 June 2015.

305–6 Emissions of ozone-depleting substances (ODS) The Company does not produce ODS emissions.

a. I. NOX; 11,097 tons. II. SOX; 29.765 tons. III. No emissions of persistent organic pollutants (СОЗ). IV. Volatile organic compounds (VOC); 12,951 tons. V. No emissions of hazardous air pollutants (HAP). 305–7 NO , SO and other significant air emissions X X VI. Particulate matter (PM); 7,682 tons. VII. Other standard categories of air emissions identified in relevant regulations: 18 tons. c. Methods are specified in Letter of the Russian Ministry of Natural Resources and Environment No. 05-12-47/4521 dated 29 March 2012.

306 Effluents and waste

103 Management Approach

103-1 Explanation of the material topic and its Boundary Report and reporting process, p. 7

Environmental performance and protection, 103-2 The management approach and its components p. 86

Environmental performance and protection, 103-3 Evaluation of the management approach p. 86

Environmental performance and protection, 306–1 Water discharge by quality and destination b. Actual waste water discharge (measured by flow meters). p. 88

a. Transferred to specialist contractors: 1,689.403 tons. Environmental performance and protection, b. Incineration, mass burn (neutralized): 1,251.048 tons. 306–2 Waste by type and disposal method p. 87 Landfill: 20,508.968 tons. Transferred to specialist contractors: 11,672.036 tons. Disposed of: 11,817.3 tons. SUSTAINABILITY REPORT 2017 Appendix 2. Compliance with gri standards 106

Indicator Indicator Section of the Report Notes index

Spill at the PK (100+28) section of the gas flowline from gas condensate well pad No. U07 of the Urengoyskoye field within the Samburgskiy license area caused by unsealing 306–3 Significant spills (volume spilled – 0.5 cubic meters). Gas condensate landed on snow, without contaminating the soil.

The Company does not transport, import, export or treat waste deemed hazardous under the terms of the Basel 306–4 Transport of hazardous waste Convention Annex I, II, III, and VIII, and does not ship waste internationally.

There are no water bodies or related habitats materially 306–5 Water bodies affected by water discharges and/or runoff affected by water discharge and/or runoff.

307 Environmental compliance

103 Management Approach

103-1 Explanation of the material topic and its Boundary Report and reporting process, p. 7

103-2 The management approach and its components The Company operates in accordance with the legislation of the Russian Federation. 103-3 Evaluation of the management approach

The amount of fines for non-compliance with environmental 307–1 Non-compliance with environmental laws and regulations laws is immaterial for the Company.

Category: Social

401 Employment

103 Management Approach

103-1 Explanation of the material topic and its Boundary Report and reporting process, p. 7

103-2 The management approach and its components Employment practices, p. 66

103-3 Evaluation of the management approach Employment practices, p. 66

Employment practices, p. 66 401–1 New employee hires and employee turnover Personnel Structure appendix, p. 96-97

Benefits provided to full-time employees that are not provided to 401–2 The benefits are provided to all employees. temporary or part-time employees

401–3 Parental leave Personnel Structure appendix, p. 97 SUSTAINABILITY REPORT 2017 Appendix 2. Compliance with gri standards 107

Indicator Indicator Section of the Report Notes index

402 Labour/management relations

103 Management Approach

103-1 Explanation of the material topic and its Boundary Report and reporting process, p. 7

103-2 The management approach and its components The Company operates in accordance with the legislation of the Russian Federation. 103-3 Evaluation of the management approach

Under the Russian law, the minimum notice period as regards the Company’s significant operational changes is 402–1 Minimum notice periods regarding operational changes eight weeks (incorporated into the collective bargaining agreement).

403 Occupational health and safety

103 Management Approach

103-1 Explanation of the material topic and its Boundary Report and reporting process, p. 7

103-2 The management approach and its components Occupational health and safety, p. 78-79 The Company operates in accordance with the legislation of the Russian Federation. 103-3 Evaluation of the management approach Occupational health and safety, p. 78-79

Workers representation in formal joint management–worker 403–1 There are no joint health and safety committees. health and safety committees

Types of injury and rates of injury, occupational diseases, lost 403–2 Occupational health and safety, p. 80 days, and absenteeism, and number of work-related fatalities

Workers with high incidence or high risk of diseases related to There are no records of workers with occupational diseases 403–3 their occupation or workplaces with high injury rates.

404 Training and education

103 Management Approach

103-1 Explanation of the material topic and its Boundary Report and reporting process, p. 7

103-2 The management approach and its components Employment practices, p. 68-70

103-3 Evaluation of the management approach Employment practices, p. 68-70

404–1 Average hours of training per year per employee Employment practices, p. 68

Programs for upgrading employee skills and transition assistance 404–2 Employment practices, p. 69 programs

Percentage of employees receiving regular performance and 404–3 Employment practices, p. 68 career development reviews SUSTAINABILITY REPORT 2017 Appendix 2. Compliance with gri standards 108

Indicator Indicator Section of the Report Notes index

405 Diversity and equal opportunity

103 Management Approach

103-1 Explanation of the material topic and its Boundary Report and reporting process, p. 7

103-2 The management approach and its components Employment practices, p. 65-66 The Company operates in accordance with the legislation of the Russian Federation. 103-3 Evaluation of the management approach Employment practices, p. 65-66

405–1 Diversity of governance bodies and employees Personnel Structure appendix, p. 94-97

Wage rates for women and men are based on equal pay 405–2 Ratio of basic salary and remuneration of women to men structures at NOVATEK for the specific type of worked performed.

406 Non-discrimination

103 Management Approach

103-1 Explanation of the material topic and its Boundary Report and reporting process, p. 7

Employment practices, p. 65 103-2 The management approach and its components Ethics, p. 41 The Company operates in accordance with the legislation of the Russian Federation. Employment practices, p. 65 103-3 Evaluation of the management approach Ethics, p. 41

The Company identified no incidents of discrimination in the 406–1 Incidents of discrimination and corrective actions taken reporting period.

407 Freedom of association and collective bargaining

103 Management Approach

103-1 Explanation of the material topic and its Boundary Report and reporting process, p. 7

103-2 The management approach and its components The Company operates in accordance with the legislation of the Russian Federation. 103-3 Evaluation of the management approach

The Company identified no operations in which the right to Operations and suppliers in which the right to freedom of 407–1 exercise freedom of association or collective bargaining may association and collective bargaining may be at risk be violated or put at significant risk.

408 Child labour

103 Management Approach

103-1 Explanation of the material topic and its Boundary Report and reporting process, p. 7 SUSTAINABILITY REPORT 2017 Appendix 2. Compliance with gri standards 109

Indicator Indicator Section of the Report Notes index

103-2 The management approach and its components Ethics, p. 41 The Company operates in accordance with the legislation of the Russian Federation. 103-3 Evaluation of the management approach Ethics, p. 41

Operations and suppliers at significant risk for incidents of child No departments, where there is a risk of child labour, have 408–1 Ethics, p. 41 labour been identified.

409 Forced and compulsory labour

103 Management Approach

103-1 Explanation of the material topic and its Boundary Report and reporting process, p. 7

Operations and suppliers at significant risk for incidents of The Company identified no operations at risk for incidents of 409–1 Ethics, p. 41 forced or compulsory labor forced or compulsory labor.

411 Rights of indigenous peoples

103 Management Approach

103-1 Explanation of the material topic and its Boundary Report and reporting process, p. 7

103-2 The management approach and its components External social policy, p. 58-59 The Company operates in accordance with the legislation of the Russian Federation. 103-3 Evaluation of the management approach External social policy, p. 58-59

There were no incidents of violations involving rights of 411–1 Incidents of violations involving rights of indigenous peoples indigenous peoples.

413 Local communities

103 Management Approach

103-1 Explanation of the material topic and its Boundary Report and reporting process, p. 7

103-2 The management approach and its components External social policy, p. 57-59

103-3 Evaluation of the management approach External social policy, p. 57-59

External social policy, p. 59-61 Operations with local community engagement, impact 413–1 assessments, and development programs Environmental performance and protection, p. 91

Operations with significant actual and potential negative There was no significant negative impact in the reporting 413–2 impacts on local communities year. SUSTAINABILITY REPORT 2017 Appendix 2. Compliance with gri standards 110

Indicator Indicator Section of the Report Notes index

SECTOR DISCLOSURES

OG1 Volume and type of estimated proved reserves and production Company’s results, p. 43

The Company did not invest in renewable energy but derives OG2 Total amount invested in renewable energy some of its energy directly from solar panels and wind generators.

Environmental performance and protection, OG3 Total amount of renewable energy generated by source p. 86

Number and percentage of significant operating sites in which Environmental performance and protection, OG4 biodiversity risk has been assessed and monitored p. 90

The volume of formation and produced water exceeded 2 OG5 Volume and disposal of formation or produced water million cubic meters.

Environmental performance and protection, OG6 Volume of flared and vented hydrocarbon p. 86

Amount of drilling waste (drill mud and cuttings) and strategies Environmental performance and protection, OG7 for treatment and disposal p. 87

OG8 Benzene, lead, and sulphur content in fuels There is no benzene, lead on sulphit in produced fuels.

Operations where indigenous communities are present Our strategy, p. 18 OG9 or affected by activities and where specific engagement strategies are in place External social policy, p. 59

Number and description of significant disputes with local OG10 There were no disputes with local communities. communities and indigenous peoples

Number of sites that have been decommissioned and sites that OG11 No sites have been, or are being decommissioned. are in the process of being decommissioned

Operations where involuntary resettlement took place, the The Company did not engage in operations that caused OG12 number of households resettled in each and how their livelihoods involuntary resettlement. were affected in the process

OG13 Number of process safety events, by business activity Occupational health and safety, p. 79

Volume of biofuels produced and purchased meeting OG14 The Company does not produce or purchase biofuel. sustainability criteria SUSTAINABILITY REPORT 2017 Glossary 111

Glossary

APG associated petroleum gas UNITS EMIC Environmental Monitoring and Industrial Control bcm billion cubic meters GDR Global Depositary Receipt bln billion GBS Gravity-based structure boe barrels of oil equivalent GHG greenhouse gas ha hectare Integrated Management System for Environmental GJ gigajoule I M S Protection, Occupational Health and Safety Gcal gigacalorie IFRS International Financial Reporting Standards km kilometer LNG liquefied natural gas kWh kilowatt hour LPG liquid petroleum gases mmcm million cubic meters RAS Russian Accounting Standards mln million SGC stable gas condensate Mwh megawatt hour UGSS Unified Gas Supply System mmt million metric tons YNAO Yamal-Nenets Autonomous Region mt thousand metric tons CDP Carbon Disclosure Project t ton Earnings before interest, taxes, depreciation and EBITDA amortization GRI Global Reporting Initiative ISO International Organization for Standardization LSE London Stock Exchange OHSAS Occupational Health and Safety Management Systems PRMS Petroleum Resources Management System SEC US Securities and Exchange Commission Contact details

Moscow office: Press service: 2 Udaltsova St., Moscow, 119415, Russia +7 495 721-22-07, e-mail: [email protected]

Central information service: Investor relations: +7 495 730 6000, fax: +7 495 721 2253 +7 495 730 6013, e-mail: [email protected] e-mail: [email protected] Security hotline: +7 495 232 3959 e-mail: [email protected]